Trusts have become increasingly popular additions to an estate plan in recent years due in large part to the abundant and diverse estate planning goals you can achieve using a trust. If you have some familiarity with trusts, you may already have questions as well. For example, you undoubtedly want to know what an administrator of a trust does so that you make the right choice when you appoint someone to administer the trust you create.
Learning some trust fundamentals helps to better understand the trust administration process. A trust is created by a Settlor, who transfers property to a Trustee. The Trustee holds that property for the trust’s beneficiaries and is ultimately responsible for administering the trust. A trust can be a living trust or a testamentary trust, the difference being that a living trust activates during the Settlor’s lifetime whereas a testamentary trust activates after the death of the Settlor. As such, a trust can be administered while the Settlor is still alive or after the death of the Settlor. If the trust is a living trust, the administration of the trust begins the moment the trust agreement takes effect. If the trust is a testamentary trust, administration of the trust begins right after the death of the Settlor.
What Does an Administrator of a Trust Do?
One of the most important decisions you will need to make when creating a trust is who to appoint to administer the trust. Referred to as the Trustee, this person (or entity) will contribute greatly to the success, or failure, of the trust. Given the importance of your Trustee, it is important that you understand what the duties and responsibilities of the administrator of a trust are to help ensure that you appoint the best person for the job. While the Trustee may have a number of additional duties and responsibilities as well, a typical administrator of a trust must:
- Manage and protect trust assets. Trust assets can include almost anything of value. Consequently, this could mean something as simple as reconciling bank statements or something as complex as maintaining real property.
- Follow the trust terms. Unless the terms of a trust are impossible, illegal, or unconscionable, the Trustee is required to follow the terms exactly as written by the Settlor.
- Invest trust funds using the “Prudent Investor Standard.” The administrator of a trust handles someone else’s assets, meaning they are in a fiduciary role. Investments, therefore, should never be risky. One of the most important rules when administering a trust is that guarding the principal is more important than a huge return on investment.
- Communicate with trust beneficiaries. The administrator has an obligation to keep the beneficiaries of the trust informed of trust business.
- Resolve conflicts among beneficiaries. Disputes among beneficiaries do happen. The Trustee must remain neutral and should attempt to resolve the conflict before it turns into litigation. If the trust allows for future beneficiaries as well, the administrator must take their best interest into account as well when resolving conflicts.
- Make discretionary decisions. If the Settlor gave the Trustee power to make decisions regarding investments and/or disbursements, part of administering the trust will include making those discretionary decisions.
- Distribute trust funds 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.
- Keep 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. Therefore, the Trustee should always keep detailed records of everything involved in administering the trust.
- Prepare and pay trust taxes. Because a trust is a separate legal entity, a trust is taxed. The Trustee must see that a tax return is completed for the trust each year and any taxes due from the trust are paid as part of the administration of the trust.
Contact Kirkwood Trust Attorneys
For more information, please join us for an upcoming FREE seminar. If you have additional questions or concerns about creating a trust or trust administration, contact the experienced Kirkwood trust attorneys at Amen, Gantner & Capriano, Your Estate Matters, LLC by calling (314) 966-8077 to schedule an appointment.