A comprehensive estate plan generally includes additional estate planning tools and strategies beyond a simple Last Will and Testament. Although the tools and strategies you choose to include in your estate plan will depend on your individual goals, needs, and objectives, a common addition to any well drafted estate plan is a trust agreement. Over the last several decades, trusts have evolved to the point where there is a specialized trust for almost any purpose – and if a specialized trust does not yet exist, the flexibility offered by your ability to create your own trust terms makes it possible to create your own trust to fit your needs. One thing that all trusts have in common, however, is the need for trust administration once the trust is active. Consequently, every trust includes a Trustee who is responsible for the trust administration. People often make the mistake of appointing a spouse, adult child, or parent as the Trustee of their trust without giving the matter due consideration. Before you make the same mistake, consider why you might wish to appoint a professional to handle your trust administration.
What Is a Trust?
A trust is a relationship whereby property is held by one party for the benefit of another. A trust is created by a “Settlor”, also referred to as a “Maker” who transfers property to a Trustee. The trustee holds that property for the beneficiaries of the trust. The Trustee must abide by the terms of the trust, which are created by the Settlor, unless those terms are illegal or unconscionable, or the terms are changed by the Settlor or a court.
What Is Involved in Trust Administration?
The Trustee of a trust is responsible for overseeing the administration of the trust as well as managing the trust assets. The duties and responsibilities that go along with trust administration are time consuming and often complex, even when the trust is a relatively simple trust. The more complex the trust terms, and the more valuable the trust assets, the more difficult the job of Trustee tends to be. Some of the more common duties and responsibilities a Trustee has with regard to trust administration include:
- Fiduciary duty – a Trustee has a fiduciary duty to all beneficiaries, both present and future, of the trust. A fiduciary duty means the Trustee must use even more care than he/she would with his own assets and investments.
- Duty to follow investment standards – a Trustee must follow the “prudent investor” standard. This requires the Trustee not to invest in risky or speculative investments and to always consider what is in the best interest of current and future beneficiaries of the trust.
- Communicating with beneficiaries – the Trustee of a trust has a responsibility to communicate with all trust beneficiaries regarding trust business.
- Following the trust terms – a Trustee must understand, and abide by, the terms of a trust unless they are illegal or unconscionable.
- Distributing trust assets – the trust terms will dictate when, to whom, and how much, assets are to be distributed from the trust by the Trustee. A Trustee may have discretion to make distributions.
- Duty to prepare and pay taxes – a trust is a separate legal entity. As such, the trust must file and pay any state and/or federal taxes due. It is the Trustee’s duty to see that they are filed and paid.
- Duty to keep records of trust business – a Trustee must keep detailed records of all trust business, including accounting records.
Choosing Your Trustee — Is a Professional Trustee Necessary?
As the Settlor of s trust you have the ultimate say with regard to who you appoint as the Trustee of your trust. Keep in mind, however, that your choice of Trustee will have a direct impact on the success, or failure, of your trust. A Trustee’s job often involves the need to understand and utilize financial knowledge as well as legal knowledge. Failing to have a firm understanding of these financial and legal concepts could lead to costly mistakes on the part of a Trustee. With that in mind, it is often in your best interest to consider appointing a professional Trustee to handle your trust administration.
If you have additional questions or concerns regarding trust administration, contact the experienced New Hampshire Medicaid attorneys at Debruyckere Law Offices by calling (603) 894-4141 or (978) 969-0331 to schedule an appointment.