Over the last several decades, trusts have become an increasingly popular addition to a well-rounded and comprehensive estate plan. One reason for this is the numerous and diverse estate planning goals you can achieve with a trust. Although there are a seemingly endless number of specialized trusts, one thing that all trusts have in common is the need to appoint a Trustee to administer the trust. Appointing a spouse or close friend to be your Trustee may seem like a good idea; however, a professional Trustee is often a better choice for your Inglewood trust administration.
Trust Basics for the Beginner
At its most basic, a trust is a relationship whereby property is held by one party for the benefit of another. A trust is created by a Settlor, who transfers property to a Trustee. The Trustee holds that property for the trust’s beneficiaries.
Trustee Duties and Responsibilities
The overall job of a Trustee is to administer the trust and manage the trust assets. Specifically, however, the duties and responsibilities of a Trustee are numerous and may include:
• Managing and protecting trust assets
• Abiding by the trust terms unless they are impossible, illegal, or unconscionable
• Investing trust funds using the “Prudent Investor Standard”
• Monitoring trust investments
• Communicating with trust beneficiaries
• Resolving conflicts among beneficiaries
• Making discretionary decisions
• Distributing trust funds to beneficiaries
• Approving or denying distributions if given discretionary authority
• Keeping detailed trust records
• Preparing and paying trust taxes
Choosing Your Trustee
One of the most common mistakes people make when creating a trust is to appoint the wrong person as Trustee. As the Settlor, you ultimately have the right to appoint anyone you want as the Trustee; however, if you want the trust to be successful, it is in your best interest to think objectively and carefully when appointing your Trustee. All too often, a Settlor appoints a spouse, family member, or close friend as the Trustee of a trust without really thinking that appoint through. Instead, they simply appoint someone whom they “trust” as the Trustee. While it is certainly necessary to trust your Trustee, trust alone is insufficient to ensure that the individual will successfully administer the trust. Appointing a professional Trustee is frequently a better alternative for many reasons, including:
• Abiding by trust terms – the Settlor of a trust creates the trust terms. Those terms guide the administration of the trust. Within the trust terms you will find the trust purpose and other information that tells the Trustee how the trust assets are to be managed and invested as well as distributed. The Trustee must abide by all trust terms unless a term is illegal, unconscionable, or impossible. When the Trustee is a spouse, family member, or friend, the temptation to ignore, alter, or intentionally misconstrue a trust term can be strong if the individual does not agree with the term. A professional Trustee, on the other hand, has no personal stake in the outcome of the trust and is ethically bound to follow each and every term.
• Knowledge of the law – administering a trust requires a good degree of knowledge of state and federal laws that govern the trust. Most non-professional Trustees lack the legal background necessary to understand these laws whereas a professional Trustee is often an attorney himself/herself or has one on staff.
• Ability to invest wisely – the overall success of a trust depends, to a great extent, on the Trustee’s ability to successfully invest and grow the trust assets. Professional Trustees do this for a living, day in and day out, and are more likely to grow the trust than most non-professional Trustees.
• Avoiding conflicts – when the Trustee of a trust is a spouse, family member, or friend it almost always means that he/she is personally acquainted with the trust beneficiaries. This, in turn, dramatically increases the potential for conflicts during the administration of the trust. Conversely, appointing a professional Trustee effectively removes the likelihood of most conflicts.
Contact an Inglewood Trust Administration Attorney
For more information, please download our FREE estate planning worksheet. If you have additional questions or concerns relating to Inglewood trust administration, make sure you consult with a California trust administration attorney. Contact the Collins Law Firm by calling (310) 677-9787 to register for one of our FREE estate planning workshops.