Although a Last Will and Testament remains the most common estate planning tool, trusts are not far behind in terms of the frequency with which they are included in an estate plan. If you choose to include a trust in your estate plan, you will need to make a number of decisions during the creation of your trust. Among the most important of those decisions is who to appoint as the Trustee of your trust. Related to that decision is deciding how much discretion to give your Trustee. A Londonderry trusts attorney at DeBruyckere Law Offices discusses how to evaluate the need for Trustee discretion within your trust.
Understanding Your Trust Options
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 called a Maker, Grantor, or Trustor who transfers property to a Trustee chosen by the Settlor. The Trustee holds that 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.
All trusts can be broadly divided into two categories – testamentary or living (inter vivos) trusts. Testamentary trusts are typically activated by a provision in the Settlor’s Last Will and Testament and, therefore, do not become active during the lifetime of the Settlor. Conversely, a living trust activates during the Settlor’s lifetime. Living trusts can be further sub-divided into revocable and irrevocable living trusts. If the trust is a revocable living trust, as the name implies, the Settlor may modify or terminate the trust at any time. An irrevocable living trust, however, cannot be modified or revoked by the Settlor at any time nor for any reason unless a court grants the right to revoke or modify the trust.
Who Should Be Your Trustee?
It is very easy to make mistakes when you are creating estate planning documents without the assistance of an experienced estate planning attorney. One of the most common mistakes people make when creating a trust using the DIY route is to simply a spouse, family member, or close friend without taking the time to analyze whether that person is really the best person for the job. No matter how well-intentioned people close to you may be, the job of a Trustee often includes complex legal and financial concepts with which the average person simply is not familiar because they have no reason to be. Consequently, they sometimes make costly mistakes during the administration of the trust. When deciding on your Trustee, keep in mind that the primary duties of a Trustee are to protect the trust assets and administer the trust using the trust terms created by the Settlor. Specific duties and responsibilities of a Trustee may include:
- Managing and protecting trust assets
- Abiding by the trust terms unless they are impossible, illegal, or unconscionable
- Investing the trust funds using the “Prudent Investor Standard”
- Monitoring trust investments
- Communicating with trust beneficiaries
- Resolving conflicts among beneficiaries
- Making discretionary decisions (if the trust allows)
- Distributing trust funds to beneficiaries
- Approving or denying requests for distributions if given discretionary authority
- Keeping trust records
- Preparing and paying trust taxes
How Much Discretion Does My Trustee Need?
As the Settlor of the trust, you decide how much discretion to give your Trustee through the trust terms you create. It is rare for a Trustee to be able to administer a trust without ever needing to make discretionary decisions. The question, therefore, should be how much discretion your Trustee needs, not whether to grant any discretion at all. The type of trust you create coupled with your trust purpose will dictate how much or how little discretion your Trustee needs in order to successfully administer the trust. For instance, if you are creating a revocable living trust as an incapacity planning tool, the Trustee will need a significant amount of discretionary authority because most of your assets will be held in the trust and the conditions under which your successor Trustee takes over will not be known ahead of time. Conversely, if you create an irrevocable living trust for the purpose of funeral planning, your Trustee doesn’t need much discretion because the point of the trust is to ensure that your wishes, as outlined in the trust terms, are honored.
Contact a Londonderry Trusts Attorney
For more information, please download our FREE estate planning worksheet. If you have additional questions about the amount of discretion your Trustee needs, contact the Londonderry trusts attorneys at DeBruyckere Law Offices by calling (603) 894-4141 or (978) 969-0331 to schedule an appointment.