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. One of the most common reasons for a trust to fail is appointing the wrong Trustee. Typically, that happens because the Settlor doesn’t really understand what the duties and responsibilities of a Trustee are and, therefore, appoints someone who is less than qualified. To help you avoid making this common mistake, a Kirkwood living trust lawyer explains a Trustee’s role during trust administration.
Trust 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 and may have both current and future beneficiaries.
Trusts are also divided into two categories – testamentary and 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. A living trust, on the other hand, activates during the Settlor’s lifetime. Living trusts can be further sub-divided into revocable and irrevocable living trusts. As the name implies, an irrevocable trust cannot be changed, modified, or terminated by the Settlor once it activates. If the trust is a revocable living trust, however, the Settlor may modify or terminate the trust at any time.
Trust Administration and the Role of Trustee
Once a trust is activated, the Trustee’s job of administering the trust begins. A Trustee has a wide range of duties and responsibilities that are involved in the administration of the trust, including:
- Managing and protecting trust assets – this is a primary duty of the Trustee. Almost any type of assets can be used to fund a trust. Some trusts include numerous different types of assets. As a fiduciary, the Trustee must be more careful with trust assets than he/she would be with her own assets.
- Abide by the trust terms unless they are impossible, illegal, or unconscionable – administering a trust requires the Trustee to abide by the trust terms without regard to the Trustee’s personal opinion of those terms. The only time a Trustee can ignore or stray from a trust term is if the term is illegal, impossible, or unconscionable, and even then the Trustee may need court approval.
- Invest trust funds using the “Prudent Investor Standard” – ideally, the assets held in the trust will grow and increase in value over the life of the trust. The Trustee is responsible for investing those assets and increasing the overall value of the trust. The Trustee, however, must use the “prudent investor standard” which calls for the Trustee to always guard the principal and to only make conservative, risk-averse, investments.
- Communicate with trust beneficiaries – trust administration also involves keeping the beneficiaries of the trust apprised of all trust business and making distributions to those beneficiaries according to the terms of the trust.
- Make discretionary decisions – the Settlor of the trust decides how much discretion a Trustee will have with regard to investing, making distributions, and other trust administration matters. Without some discretion, a Trustee’s hands can become tied and the trust can suffer. With too much discretion, a Trustee could make bad decisions that result in the loss of trust assets.
Contact a Kirkwood Living Trust Lawyer
If you have additional questions or concerns, please join us for an upcoming FREE seminar. For more information regarding trust administration, contact an experienced Kirkwood living trust lawyer at Amen, Gantner & Capriano, Your Estate Matters, LLC by calling (314) 966-8077 to schedule an appointment.
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