Although a Last Will and Testament remains the cornerstone of the average estate plan, most people also incorporate additional estate planning tools and strategies into their comprehensive estate plan, such as a trust. Though once used almost exclusively by very wealthy families as a mechanism by which they could pass down the family wealth while still maintaining control over the assets, trusts have evolved over the last century to the point where they are now commonly found in the estate plans of average people. If you elect to include a trust in your estate plan, one of the biggest decision you will need to make is who to appoint as the Trustee of the trust. The Trustee of your trust is responsible for the trust administration, meaning your choice of Trustee will have a significant impact on the success or failure of your trust. Deciding who to appoint as your Trustee is not, there, a decision that should be made lightly. Before making a decision, it helps to have a better idea of what the numerous and varied duties and responsibilities of a Trustee are as it may help you pick the best Trustee for the job.
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” “Donor” or “Trustor” 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, the Settlor changes them (if applicable), or a court changes the terms.
Trustee Duties and Responsibilities
People frequently make the mistake of appointing someone as a Trustee simply because the person is a spouse/close friend/ family member without giving any real thought to whether or not the individual is suited to the position. The problem is that people are often unaware of what administering a trust really entails. Some of the most common duties and responsibilities of a Trustee 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.
- Responsibility to communicate with beneficiaries – the Trustee of a trust has a responsibility to communicate with all trust beneficiaries regarding trust business.
- Responsible for follow trust terms – a Trustee must understand, and abide by, the terms of a trust unless they are illegal or unconscionable. The Trustee’s own personal opinion cannot interfere in the administration of the trust.
- Responsible for distributing assets – the trust terms will dictate when, to whom, and how much, assets are to be distributed from the trust. The Trustee is responsible for making sure the distributions are made according to the trust terms. If the Trustee has discretion with regard to making distributions, the Trustee must consider the Settlor’s intent and the best interest of the beneficiaries when deciding whether or not to make a discretionary distribution.
- 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. It should now be clear that the job of a Trustee can be a complicated one that requires a certain degree of financial skills and legal knowledge. It is for this reason that Settlors often decide to appoint a professional Trustee in lieu of a personal friend or family member.
For additional information, please download our fee report “Trust Administration: Prior Planning Prevents Problems.” If you have additional questions or concerns regarding trust administration, contact the experienced New Hampshire estate planning attorneys at Debruyckere Law Offices by calling (603) 894-4141 or (978) 969-0331 to schedule an appointment.