Although the primary focus of your estate plan may be the eventual distribution of your estate assets after you are gone, your estate plan will likely include a wide range of additional, inter-related, goals and objectives in addition to your primary objective. In order to accomplish all of those goals and objectives, you will need to utilize a variety of estate planning tools and strategies. One of the most common of those tools is a trust. If you do choose to establish a trust as part of your estate plan, one of the most important decisions you will need to make when creating your trust is your choice of Trustee. As the Settlor of the trust you can appoint anyone you wish to be the Trustee; however, keep in mind that your choice of Trustee can determine whether your trust achieves its intended purpose or not. With that in mind, you may wish to consider appointing a trust attorney to serve as the Trustee of your trust to ensure that the trust succeeds.
Understanding Trusts – The Basics
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 or a Grantor, who transfers property to a Trustee. 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. A trust may have both current and future beneficiaries.
All trusts fit into one of 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 once active.
Understanding the Duties and Responsibilities of a Trustee
In general, the Trustee’s job is to oversee the administration of the trust and manage the trust assets. That explanation, however, is an over-simplification of the duties and responsibilities of a Trustee. In practice, a Trustee plays a number of diverse roles during the administration of a trust, including:
- Managing and protecting trust assets
- Abiding by the trust terms unless they are impossible, illegal, or unconscionable
- Investing trust funds using the “Prudent Investor Standard”
- Monitoring trust investments
- Communicating with trust beneficiaries
- Resolving conflicts among beneficiaries
- Making discretionary decisions
- Distributing trust funds to beneficiaries
- Approving or denying distributions if given discretionary authority
- Keeping detailed trust records
- Preparing and paying trust taxes
Why a Trust Attorney May Be a Better Choice as Trustee
One of the main reasons why trusts fail is that the Settlor appoints a close friend, spouse, or family member to the position of Trustee without stopping to consider if that person actually has the necessary experience and skill set for successfully fulfilling the role. The job of Trustee requires knowledge of the applicable laws, as well as a certain degree of financial know how and/or experience. No matter how well-meaning a family member might be, if he/she doesn’t understand the laws and/or the financial concepts involved in the job of Trustee, mistakes will likely be made. Even a relatively minor mistake during the administration of a trust could be costly. As the Settlor of a trust, you have the option to appoint a professional Trustee, such as a trust attorney. Along with having the requisite experience and knowledge, a professional Trustee also offers the added advantage of eliminating even the hint of favoritism when it comes to discretionary trust decisions and completely avoids the possibility of a conflict of interest because the Trustee does not know any of the beneficiaries.
Contact a Trust Attorney
For more information, please download our FREE estate planning worksheet. If you have additional questions or concerns about creating a trust, or about who to appoint as your Trustee, contact the experienced trust attorneys at DeBruyckere Law Offices by calling (603) 894-4141 or (978) 969-0331 to schedule an appointment.