When someone decides to create a trust, one of the most important decisions they must make is who to appoint as the Trustee. If you were recently notified that someone appointed you as the Trustee of their trust, and you have never before acted as a Trustee, you may feel a bit overwhelmed. As a Los Angeles trust administration attorney at Collins Law Firm explains, the key to performing your new role of Trustee well is to gain a complete understanding of trust administration and the duties and responsibilities of a Trustee.
Trust and Trust Administration Basics
As a new Trustee, you need to learn some trust and rust administration 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. All trusts are broadly divided into two categories – testamentary and living (inter vivos) trusts. Testamentary trusts do not become active during the lifetime of the Settlor. If you are the Trustee of a testamentary trust, it means that the Settlor is no longer around to confer with regarding his/her intentions. Conversely, a living trust, activates during the Settlor’s lifetime and can be further sub-divided into revocable and irrevocable living trusts. The Settlor of an irrevocable living trust may not make any changes to the trust once the trust is active; however, the Settlor of a revocable living trust may modify or terminate the trust at any time.
Tips for the New Trustee
A Trustee typically has a wide range of specific duties and responsibilities during the administration of a trust; however, the overall job of a Trustee is to manage the trust assets and to administer the trust using the trust terms created by the Settlor.
- Understand the importance of the trust agreement terms. Almost everything a Trustee needs to know about administering a specific trust can be found in the trust terms. The terms are created by the Settlor and provide a roadmap for administering the trust. Read through the trust agreement. Then read it again – and then read it again – as many times as is necessary to ensure that you fully understand all the terms. A trust agreement can be relatively simple; however, most are complex documents full of legal concepts and jargon that probably sounds foreign to you unless you have a legal background. An accurate and complete understanding of the agreement, however, is crucial to performing your job as Trustee without making any serious mistakes – and mistakes can be costly for a Trustee. To ensure that you understand the trust terms, go over them with an experienced trust administration attorney.
- Evaluate, inventory, and secure the trust assets immediately. Funding a trust can be accomplished with almost anything of value, including cash, securities, and/or real property. If the trust in question owns numerous assets, you need to have an accurate accounting of those assets and their value from day one. You also need to make sure all the trust assets are secure and that you have a plan in place to keep them that way.
- Decide how best to invest the trust assets. For this, you need to turn to the trust agreement. The trust agreement should provide guidance regarding how the Settlor wants the assets to be invested. Some Settlors want the Trustee to be aggressive with trust assets while others are very risk averse. First, you need to figure out what the Settlor’s position is on investing. Then you need to create a short and long-term investment plan. No matter what the trust agreement says, however, you must remember that the trust principal must be protected at all times.
- Consult with and retain professionals to assist you during the administration of the trust. Unless you happen to have a background, or be educated, in the legal or financial field, you should consult with the appropriate advisors. Most Trustees retain the services of an estate planning attorney to help administer the trust and a financial advisor to help create an investment plan. Even if you do happen to have a financial and/or legal background, retaining professionals to advise and assist you goes a long way toward protecting you from any personal liability for wrongdoing during your job as Trustee.
- Keep detailed records. The need to record everything cannot be overstated. It also helps to protect you from accusations of wrongdoing. You will be required to communicate with beneficiaries on a regular basis and provide them with updates about trust business. To fulfill that obligation, you need to keep detailed records of all trust related business, including, but not limited to, investments, trust expenses, disbursements, and taxes. You also have the right to a fee for acting as the Trustee; however, you may need to justify that fee at some point which is another reason it is imperative that you keep detailed records of the time you spend on trust related business.
Contact Collins Law Group
For more information, please download our FREE estate planning worksheet. If you have additional questions about serving as a Trustee, consult with a Los Angeles trust administration attorney. Contact the Collins Law Firm by calling (310) 677-9787 to register for one of our FREE estate planning workshops.