I was Appointed Trustee of a Trust. Now What Do I Do?
Compliments of the Law Office of Michael Robinson, P.C.
Written By: The American Academy of Estate Planning Attorneys
During the creation of a Trust, a number of decisions must be made. One of the most important of those decisions is who the Trustor (the person who establishes creator of the Trust) will appoint as the Trustee. Ideally, the Trustor will discuss the appointment with the prospective Trustee at the time the Trust is created; however, that does not always occur. Sometimes, the appointment comes as a complete surprise to the Trustee. If you have been notified recently that you are a Trustee, you are undoubtedly wondering what your duties and responsibilities will be over the lifetime of the Trust.
First, it helps to understand the basic concept behind a Trust. A Trust is a relationship whereby property is held by one party for the benefit of another. A Trust is created by a “Trustor”, also referred to as a “Grantor” or “Maker,” who transfers property into the Trust. The Trust is managed by a Trustee who holds that property for the beneficiaries of the Trust. Trusts were once used primarily by wealthy families as a way to avoid taxes and retain a certain degree of control when passing down family wealth. However, Trusts are now an integral part of any comprehensive estate plan.
Although Trusts come in many forms and can accomplish a wide variety of estate planning goals, all Trusts require a few basic elements. One of those is a Trustee. A Trustee may be an individual or an entity, such as a bank, law firm, or professional corporation. A Trust should also appoint a Successor Trustee and/or provide provisions for appointing one in the event the original Trustee is unwilling or unable to serve. If you were recently notified that you are a Trustee, your first task is to find out whether you are the current Trustee or the Successor Trustee. If you are a Successor Trustee, you do not have to do anything unless the current Trustee resigns, dies, or becomes incapacitated at some point. If one of those three events happens, the terms of the Trust should include a provision explaining what you need to do in order to take over the position of Trustee.
Trustee Duties and Responsibilities
As the Trustee, your job is to administer the Trust’s terms and manage the Trust’s assets. Think of the Trust as a corporation and the Trustee as its CEO. As Trustee, you have a number of important duties and responsibilities, including:
- Communicate with beneficiaries – You have a responsibility to communicate with all beneficiaries of the Trust and keep them informed regarding Trust business.
- Fiduciary duty – As Trustee you owe a fiduciary duty to all present and future beneficiaries of the Trust. It is important that you understand that fiduciary duty means you must use the utmost care with Trust assets and investments. When making financial decisions, be even more careful than you would be with your own money.
- Duty to follow the “prudent investor” or other applicable standard – The “prudent investor standard” requires you to take a conservative approach when investing Trust assets. Do not invest in risky or speculative investments. Always consider what is in the best interest of current and future beneficiaries of the Trust when making investment decisions.
- Follow Trust terms – You need a clear understanding of the Trust’s terms created by the Trustor. As a general rule, you must follow and abide by those terms unless they are illegal or unconscionable. Your personal opinion regarding the terms of the Trust cannot interfere in the administration of the Trust.
- Distribute assets – The Trust’s terms will dictate how the Trust assets are to be distributed. As the Trustee, you are responsible for making sure the distributions are made accordingly. Sometimes, the Trustor gives the Trustee discretionary powers with regard to making distributions. In that case, you must consider the Trustor’s intent and the best interest of the beneficiaries when deciding whether or not to make a discretionary distribution.
- Prepare and pay taxes – A Trust is a separate legal entity, so a separate tax return may be required to be filed for the Trust each year. It is the Trustee’s responsibility to make sure that state and/or federal tax returns are prepared and any taxes owed are paid each year.
- Recordkeeping – As the Trustee you must keep detailed records of all Trust business, including accounting records.
The fact that someone appointed you as a Trustee indicates that a considerable amount of Trust and confidence has been placed in you and your abilities. Administering a Trust, however, can become a complex and time-consuming endeavor. Be sure to work closely with an experienced estate planning attorney who can help you understand the legal aspects of a Trustee’s duties and responsibilities.