Many people understand the basic concept of a trust, but aren’t entirely familiar with how a trust is actually administered once it is created. The laws of the state in which the trust was created, as well as the terms of your, trust will dictate the specifics of how your trust is administered; however, there are some commonalities among all trusts.
When you create a trust, you must designate a trustee as well as beneficiaries. The trustee will be responsible for administering the trust while the beneficiaries are the people, pets or entities, who will receive the income generated by the trust and/or the principal assets of the trust. The trustee can be a person or group, such as an investment firm or bank. Regardless of who the trustee is, their job is to administer the trust according to the terms of the trust itself as long as the terms do not violate the law.
Once a trust is legally created on paper, there are a number of practical matters that often need to be accomplished such as opening a bank account or investment account. Tax documents may need to be filed and beneficiaries notified. Administration of the trust requires ongoing accounting of the principal assets and investments. The income generated by the trust assets must be documented and any expenses incurred by the trust paid.
Trust administration also requires distribution of the trust income or principal on a monthly, quarterly or yearly basis in many cases. Upon the termination of the trust, the remaining assets must also be distributed and a final accounting completed. Yearly tax returns are also part of trust administration along with regular contact with the beneficiaries regarding the status of trust assets.
Even a modest trust can require a significant amount of legal and financial expertise. For this reason, many grantors choose to appoint an attorney or law firm as trustee. Even if the trustee is not an attorney, it is generally wise to consult with an attorney as well as a certified public account to be certain the trust is administered in accordance with the state and federal laws and all tax obligations are fulfilled.
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