Although once used almost exclusively by wealthy families, trusts are now commonly found in the average person’s estate plan. If you are contemplating the addition of a living trust to your estate plan, one of the most important decisions you will need to make when creating your trust is who to appoint as your Trustee. To choose the right person as your Trustee, you need a better understanding of what it means to administer a trust. To get you started the North Andover trust administration attorneys at DeBruyckere Law Offices explain what you need to know about trust administration.
Trustee Duties and Responsibilities
One of the most common mistakes a Settlor (the creator of a trust) can make is to appoint the wrong person as Trustee. This often happens when a Settlor appoints someone close to them, such as a spouse, close friend, or relative as Trustee based solely on their relationship to the individual instead of on the individual’s ability to perform the job of Trustee well. Ultimately, this can lead to the failure of the trust. To avoid making this common mistake, make sure you have a firm understanding of what is expected of a Trustee and then take the time to choose the right person for the job.
What Is Involved in Trust Administration?
Appointing the right Trustee begins with understanding the duties and responsibilities involved in administering a trust, such as:
- Following 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.
- Managing 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.
- Investing 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.
- Keeping 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.
- Communicating with beneficiaries – a Trustee is responsible for keeping beneficiaries informed of all trust business in a timely manner.
- Resolving conflicts – if a conflict arises. the Trustee must defend the trust in any litigation. If the conflict is among beneficiaries, a Trustee should act as a mediator to try and resolve the conflict.
- 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.
- Distributing assets – the Trustee is responsible for distributing trust assets to the designated beneficiaries according to the terms of the trust.
- Making discretionary decisions – typically, a Trustee has some degree of discretion. 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.
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 the North Andover trust administration attorneys at DeBruyckere Law Offices by calling (603) 894-4141 or (978) 969-0331 to schedule an appointment.
A common mistake people make when creating a trust is to appoint a spouse or family member as the Trustee without giving sufficient thought to the individual’s qualifications. Given the complex legal and financial nature of a trust, you may wish to consider a professional Trustee.
Yes. The Trustee is entitled to a reasonable fee for the time spent administering the trust or conducting trust business.
Yes. A beneficiary may have the right to remove the Trustee if the trust agreement grants that authority. A beneficiary may also petition a court to remove a Trustee.