If you’ve been asked to serve as the trustee for a loved one’s trust, you’re being charged with an awesome responsibility. Your role in overseeing the trust will present you with many duties that need to be fulfilled, and it will be up to you to ensure that the assets in the trust are properly secured and available to benefit the trust beneficiaries. To fulfill that responsibility, you’ll need to have some understanding about how the trust needs to be administered. You can gain some insight by reviewing the five essential facts about trust administration that every trustee should know.
You’ll Have Control Over the Assets
When someone sets up a trust, the new legal agreement contains three parties: the grantor who created the trust, the beneficiary who receives the benefit of any assets in the trust, and the trustee who manages the trust for that beneficiary’s benefit. As a trustee, you will have control over those assets, and will be responsible for ensuring that they are maintained for the heirs’ benefit. You’ll also be responsible for ensuring that funds are distributed in ways that benefit the named beneficiaries, as dictated by the terms of the trust.
The level of control and discretion that you are provided will depend on the nature of the trust and its terms. In a simple living trust designed to transfer wealth from the grantor to her heirs, your discretion may be extremely limited. There will just be a series of tasks that you need to perform – such as settling debts and paying the estate’s taxes, before you fulfill the distribution instructions. The control provided for in that kind of trust is extremely limited and tightly controlled.
Other trusts may provide more discretion. For example, special needs trusts are designed to give the trustee much more discretion in how assets are spent, and heirs are not permitted to demand distributions under any circumstances. Spendthrift trusts can be set up the same way. Basically, any time a grantor wants to ensure that a bequest cannot be directly accessed by a beneficiary, he can simply create a trust that gives more control and discretion to the trustee.
That Control Comes with a Duty
The trustee job also comes with a fiduciary duty, however. That is the highest level of duty that you can owe another person. In this instance, your fiduciary duty is to the beneficiaries. You have a duty to ensure that you put their interests before your own, avoid even the appearance of impropriety, and faithfully carry out the terms of the trust in a way that maximizes the benefits that those heirs receive.
At the same time, you have a duty to not only protect the assets in the trust, but preserve their value too. That means taking reasonable measures to invest assets where appropriate, using the same level of care that you would adopt if you were investing your own wealth. Finally, you have a duty to maintain open lines of communication with the beneficiaries, answer all reasonable questions, and maintain the highest ethical standards in all your trust dealings.
Many of Your Responsibilities are Like an Executor’s
Though many people create trusts to avoid probate, that doesn’t mean that the trust avoids everything that probate is responsible for facilitating. There are many duties that trustees must perform that look very much like the responsibilities that any will executor must fulfill. As a trustee, you will need to:
- Contact the executor, if there is a will. You’ll need to coordinate with that person at the beginning of the process, unless he or she simply transfers the assets covered by any will directly to the trust.
- Notify the court of the decedent’s death, and do the same for any relevant government agencies.
- Identify beneficiaries and creditors.
- Inventory and appraise all assets, and then secure their value.
- Make certain that all assets are transferred to your ownership as Trustee.
- Manage any investments that may in play.
- Pay debts, including taxes.
- Distribute assets as the trust terms instruct.
If You Act Improperly, You Could be Liable for Losses
It’s important to understand those responsibilities so that you don’t neglect any of them. Any mistakes on your part could lead to the estate not having enough money to cover its debts, or a loss of value due to excessively risky investments. Such actions could cause you to face liability in your role as trustee, since you are charged with maintaining the trust’s value. If that happens, you could see your own personal assets at risk due to a failure to meet your obligations. To avoid that, you need to take affirmative steps to protect yourself – including using an organizational system that clearly documents every decision and action you’ve taken, as well as the reasons for each.
You Don’t Have to Act Alone
You can also protect yourself by recognizing that you don’t have to act on your own. As the trustee, you are entitled to enlist other professionals to aid you in your job – at the trust’s expense. You can hire an appraiser to determine the value of assets, and a broker to help liquidate assets where money is needed to pay debts or beneficiaries. You can get an accountant or tax preparer to help with the monetary issues involved. Most importantly, you can hire an experienced trusts attorney to help you navigate through the complexities of the trust administration process.
That latter relationship can be almost invaluable in any trust administration process. A professional trusts attorney can help you to better understand your role, and offer critical guidance that can ensure that your job is performed to the letter of the law. At Fouts Law Group, LLC, our trust administration team can help you to avoid costly mistakes and properly exercise control over the trust that’s been placed in your charge. If you’d like to learn more about how we can work with you to simplify your trustee job, contact us online or give us a call at (404) 596-7520 today.
