Although once used almost exclusively by wealthy families as a way to pass down the family wealth without incurring taxes, trusts are now frequently included in the average person’s estate plan. Trusts come in a variety of types which is one reason for their popularity. One thing that all trusts have in common, however, is the need to appoint a Trustee. Ideally, the Trustor (creator of the trust) discusses the choice of a Successor Trustee with both an estate planning attorney and the prospective Successor Trustee prior to making the appointment. That doesn’t always happen though. If you were recently informed that you were appointed to be the Successor Trustee of a trust, you are likely feeling a little overwhelmed if you have never before served as a Trustee. Consequently, a first-time Trustee should speak with an experienced trust administration attorney to understand the fiduciary responsibilities.
A trust is a relationship whereby property is held by one party for the benefit of another. A trust is created by a Trustor, also called a Grantor. If the Trustor is alive, has capacity and willing to be the Trustee, he/she can also be the Trustee. However, a Successor Trustee is named within the trust should the Trustor die, lose capacity or be unwilling to serve as Trustee. The Trustee holds the property for the trust beneficiaries. The beneficiary of a trust can be an individual, an entity (such as a charity or political organization), or even the family pet. A trust must have at least one beneficiary but may have an unlimited number of beneficiaries. A trust may have both current and future beneficiaries. All trusts fit into one of two categories – testamentary or living (inter vivos) trusts. Testamentary trusts are typically activated by a provision in the Trustor’s Last Will and Testament and, therefore, do not become active during the lifetime of the Trustor. Conversely, a Living Trust activates during the Trustor’s lifetime.
The Job of a Trustee
The overall job of a Trustee is to protect and manage trust assets and administer the trust according to the terms found in the trust agreement created by the Trustor. The day to day duties and responsibilities of a Trustee, however, can be varied and will likely include, but not be limited to, the following:
- Managing and protecting trust assets
- Abiding by the trust terms unless they are impossible, illegal, or unconscionable
- Investing trust funds using the “Prudent Investor Standard”
- Monitoring trust investments
- Communicating with trust beneficiaries
- Resolving conflicts among beneficiaries
- Making discretionary decisions
- Distributing trust funds to beneficiaries
- Approving or denying distributions if given discretionary authority
- Keeping detailed trust records
- Preparing and paying trust taxes
Why Should a First-Time Trustee Work with an Attorney?
As the Trustee of a trust, you are in a fiduciary position, meaning that you must exercise the utmost care when handling the trust assets. A Trustee must be more careful with trust assets than he/she would be with his/her own assets and must always make decisions that are in the best interest of the trust beneficiaries, both current and future (if applicable). To do that, a Trustee must have at least a basic understanding of the applicable state and federal laws relating to trusts and an understanding of the financial concepts necessary to successfully invest and grow the trust assets. The Trustee must also have a clear understanding of the trust purpose and be able to follow the trust terms, whether you agree with those terms or not. Under some circumstances, a Trustee can even be held personally liable for errors made while acting as the Trustee. If you have never before acted as the Trustee of a trust, it only makes sense to retain the services of an experienced trust administration attorney to help you fulfill your role as Trustee so that you avoid making costly errors.
Contact an Experienced Trust Administration Attorney
For more information, please join us for an upcoming FREE seminar. If you have additional questions or concerns about fulfilling your role as the Trustee of a trust, contact the experienced trust administration attorneys at Morris Hall PLLC by calling 888-222-1328 to schedule your appointment today.