One of the most common additions to a comprehensive estate plan is a trust. In fact, many estate plans include more than one trust because of the numerous and varied estate planning goals a trust can help to further. If you choose to include a trust in your estate plan, one of the most important decisions you will need to make when you create that trust is who to appoint as your Trustee. The Trustee is responsible for administering the trust, but what exactly does it mean to administer the trust?
Trustee Duties and Responsibilities During the Administration of a Trust
A Trustee’s job is to manage the trust assets and to administer the trust using the terms created by the Settler. Specific Trustee duties and responsibilities during the administration of a trust may include:
- Protecting assets held by the trust. Trust assets can include almost anything of value. The Trustee is responsible for any and all assets held by the trust. Consequently, this could mean something as simple as reconciling bank statements or something as complex as maintaining real property.
- Understanding and following the trust terms. The Settler has great latitude when creating the trust terms. Unless the terms of a trust are impossible, illegal, or unconscionable, the Trustee is required by law to use the terms, exactly as written by the Settlor, to administer the trust.
- Using the “Prudent Investor Standard” to invest trust assets. The Trustee of a trust is responsible for managing someone else’s assets, meaning they are in a fiduciary role. Investments, therefore, should never be risky. One of the most important rules for a Trustee when administering a trust is that guarding the principal should always be the primary focus with a return on investments secondary.
- Communicating with trust beneficiaries. The Trustee of a trust has an obligation to keep the beneficiaries of the trust informed of all trust business and to correspond with the beneficiaries when necessary.
- Resolving conflicts among beneficiaries. Conflicts and disputes among beneficiaries can occur during the administration of a trust. A Trustee must remain neutral and attempt to resolve conflicts before they escalate and/or before they result in litigation. If the trust includes future beneficiaries as well, the Trustee must also consider their best interests when resolving disputes.
- Making discretionary decisions. If the Settlor gave the Trustee the power to make decisions regarding investments and/or disbursements, part of administering the trust will include making those discretionary decisions.
- Making distributions of trust assets to beneficiaries. All trusts distribute the trust assets at some point, to someone. The trust terms establish how and when this is done by the Trustee.
- Keeping detailed trust records. Ultimately, accountability for the success, or failure, of the trust will lie predominantly with the person (or entity) that administers the trust – in other words with the Trustee. With that in mind, the Trustee needs to keep detailed records of everything involved in administering the trust.
- Calculating and paying trust taxes. Because a trust is a separate legal entity, a trust is taxed which means the trust must file a tax return every year. Completing the tax return and ensuring that any taxes due is part of the administration of the trust by the Trustee.
Choose Your Trustee Wisely
Administering even a relatively simple trust is time-consuming and requires at least a rudimentary understanding of legal and financial concepts. The more complex and/or valuable the trust assets are, the more difficult it is to administer the trust as a general rule. A common mistake people make when creating a trust is to appoint someone close to them as the Trustee without really stopping to consider his/her suitability for the position. Appointing a professional as your Trustee alleviates concerns over the Trustee’s experience and/or knowledge and dramatically increases the likelihood that the trust will be successfully administered.
Contact Beverly Trust Administration Attorneys
For more information, please join us for an upcoming FREE seminar. If you have additional questions or concerns about administering a trust, contact the Beverly trust administration lawyers at DeBruyckere Law Offices by calling (603) 894-4141 or (978) 969-0331 to schedule an appointment.