Like many people, you may choose to include a trust in your overall estate plan. The benefits and uses of a trust are extensive, including things such as probate and tax avoidance, incapacity and Medicaid planning, and asset protection. Though there are a seemingly endless number of specialized trusts available for you to choose from, all trusts share some basic elements, such as the need to appoint a Trustee to administer the trust and manage the trust assets. People often make the mistake of appointing a Trustee without given sufficient thought to the duties and responsibilities of a Trustee and the overall challenges involved in trust administration. Appointing a Trustee who lacks the experience, education, and skills necessary to successfully fulfill the position can lead to the failure of your trust. A better understanding of the duties and responsibilities of a Trustee will hopefully lead to appointing the right person, or entity, for the position.
First and foremost, a Trustee owes a fiduciary duty to the trust and the trust beneficiaries. A fiduciary duty means that a Trustee must use the utmost care when managing trust assets and making investments with those assets. Risky investments are to be avoided. A Trustee should take into account what is in the best interest not only of current beneficiaries but also of future beneficiaries of the trust.
A has a duty of absolute loyalty and a duty to communicate with beneficiaries about trust business. This means the Trustee must put the interests of the beneficiaries first in all dealings and must administer the trust solely or the benefit of the Trustee, all while keeping the beneficiaries apprised of what is going on with the trust. This can create a conflict when the Trustee is also a beneficiary of the trust because the Trustee’s duty of loyalty is to all beneficiaries equally.
Management Trust Assets
A Trustee has a duty to secure, safeguard, and protect all trust assets which may include keeping extensive financial records for intangible assets or may require actually maintaining physical assets owned by the trust. If the trust has significant investment assets it becomes important that the Trustee have the financial skills and experience needed to property manage those assets.
Abiding by Trust Terms
The Settlor (creator) of a trust creates the trust terms that dictate how the trust is managed, how assets should be invested, and how the trust assets are distributed. As long as the terms are not illegal or unconscionable, the Settlor may create any terms he/she wishes. The Trustee has a duty to abide by those terms exactly as they are written, unless the Trustee is given discretion to change or modify terms. Among other things, the trust terms will typically govern the distribution of trust assets as well as provide guidance with regard to investing and managing those assets.
Some trusts make it relatively simple for the Trustee to make distributions because the Trustee has no discretion. If, however, a Trustee has any discretion with regard to making distributions it becomes much more complicated. Often, trust terms provide for regular distributions but also allow a beneficiary to request additional distributions for emergencies or special purchases. In that case, it is crucial to have the right Trustee in place to ensure that trust assets are not squandered.
Accounting and Taxes
A Trustee is responsible for keeping records of all trust business and providing an annual accounting of that business. Detailed records must be kept of all transactions conducted in the name of the trust, including all income earned by the trust, distributions made by the trust, and expenses incurred by the trust. In addition, a trust is a separate legal entity. Often, the trust is also a taxable entity. The Trustee is responsible for preparing, filing, and paying all tax obligations owed by the trust.
If the trust terms allow it, a Trustee may be able to delegate some of the duties and responsibilities relating to the trust. For example, a Trustee might retain the services of a certified public account or an estate planning attorney to help prepare the trust taxes or interpret a trust term. Even if a Trustee is allowed to delegate, however, the Trustee is ultimately responsible for all trust business.
If you have additional questions or concerns about trusts, or appointing a Trustee for a trust, contact the experienced Missouri estate planning attorneys at Amen, Gantner & Capriano, Your Estate Matters, LLC by calling (314) 966-8077 to schedule an appointment.