Trusts have been around for a very long time. Although once used almost exclusively by wealthy families, trust agreements are now commonly found in the average person’s estate plan. While there are several different types of trusts and a wide variety of specialty trusts within those broader categories, one thing that all trusts have in common is a Trustee. If you find yourself appointed to the position of Trustee for the first time you likely have questions and concerns about fulfilling your role as Trustee. To get you started, the North Andover trust administration attorneys at Debruyckere Law Offices offer a trust administration checklist for the first-time Trustee.
Trust Basics
A trust is a legal relationship where property is held by one party for the benefit of another party. The person who creates a trust is referred to as the “Settlor”, “Trustor” or “Grantor.” The Settlor transfers property to a Trustee, appointed by the Settlor. The Trustee holds that property for the trust’s beneficiaries, also named by the Settlor. The overall job of a Trustee is to protect and invest trust assets and to administer the trust terms found in the trust agreement.
Trust Administration Checklist
To ensure that you successfully fulfill your duties and responsibilities as the Trustee of a trust you need to know what is expected of you. Because every trust agreement is unique, it is impossible to tell you all your duties and responsibilities as Trustee; however, there are some common items on the trust administration checklist, such as:
- Read, understand, and follow the trust terms. The Trustee of a trust is required to abide by the terms of the trust, as created by the Settlor unless a term is illegal, impossible, or unconscionable. This requires the Trustee to understand the terms and to have the ability to follow a term even if the Trustee does not personally agree with the term.
- Manage and protect trust assets. This could require something as simple as monitoring and filing bank statements or something as complex and time-consuming as handling the maintenance and upkeep of real property or a business.
- Be conservative when investing the trust assets. Ideally, the assets held in a trust are income-producing assets. This, however, requires the Trustee to invest those assets wisely. A Trustee must always use the “prudent investor standard” which dictates conservative investments wherein the trust principal is never at risk. Moreover, because a Trustee is in a fiduciary role, he/she must be more careful with trust assets than the Trustee would be with his/her own assets.
- Keep detailed records. Because a Trustee is managing assets intended to benefit a third party, and receives a fee for that management, detailed records should always be kept. Not only will this protect you in the event of litigation, but trust beneficiaries may have the right to review some of those records from time to time.
- Communicate routinely with beneficiaries. As the Trustee, you are responsible for keeping beneficiaries informed of all trust business in a timely manner. Initially, you should reach out to the beneficiaries and let them know you are the Trustee. After that, you may need to communicate about distributions and yearly reviews.
- Conflict resolution. If a conflict arises, you are responsible for defending the trust agreement in any litigation. If the conflict is among beneficiaries, a Trustee should act as a mediator and try and resolve the conflict.
- Calculating and paying taxes. A trust is a separate legal entity, meaning taxes must be prepared and paid each year by the Trustee. Even if a Trustee hires a CPA to prepare the trust taxes each year, the Trustee should have sufficient financial skills to understand the tax return and any obligation the trust has for paying gift and estate taxes.
- Making distributions. As the Trustee, you are responsible for distributing trust assets to the designated beneficiaries according to the terms of the trust. Make sure you have a clear understanding of when assets are to be distributed, to whom, and in what amount.
- Making discretionary decisions. Typically, a Trustee has some degree of discretion when administering a trust agreement. Some Settlors give a Trustee only a token amount of discretion in case of an emergency while others provide a Trustee with the discretion to make major trust decisions. If you have significant discretion, be sure to use it wisely. When in doubt, consult with a finance professional as well as an experienced trust administration attorney.
Contact North Andover Trust Administration Attorneys
For more information, please join us for an upcoming FREE seminar. If you have additional questions about trust administration, contact our estate planning attorneys in our North Andover, Woburn, and Beverly offices at (978) 969-0331. Our Londonderry and Nashua, New Hampshire office can be reached at (603) 894-4141.
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