A trust is a legal contract created when you transfer property to a trustee for the benefit of someone else. The trustee manages the property for the beneficiary in accordance with the terms and instructions in the trust document. In other words, the trustee has legal ownership of the property, while the beneficiary has beneficial ownership.
The responsibilities and duties of a trustee are extensive because the trustee is a fiduciary who must act in the best interests of the beneficiary and owes the beneficiary the highest duty of loyalty. If you are naming an individual to serve as your trustee, there are a few questions worth asking:
- Is the prospective trustee able to handle the responsibilities?
- Does the prospective trustee have the time required to carry out their duties?
- Is the prospective trustee qualified and willing to serve in this role?
- If the answer to any of these questions is uncertain, would the trust benefit from the services of a corporate trustee?
To give you a better idea of what is expected of a trustee when you are deciding whom to name to that role, we have collected a list of the many duties of a trustee.
Duties to Beneficiaries
First and foremost, a trustee must communicate regularly with the named beneficiaries, including providing detailed account statements in a timely fashion. Additionally, a trustee must make disbursements to the beneficiaries pursuant to the specific terms of the trust document.
Accounting and Administration
In addition to providing account statements to interested parties, a trustee should establish accounting procedures appropriate for trusts in order to:
- Prepare an inventory of assets
- Update the titling of assets
- Gather, confirm, and pay bills
- Track income and principal
When it comes to managing a trust’s investments, a trustee should investigate and employ appropriate strategies for the assets based on the trust’s language and requirements. To help with this duty, a trustee might want to consider working with an investment manager. They can help the trustee regularly review the assets for performance and quality, initiate transactions to minimize tax consequences, and confirm the daily investment of cash. They can also do regular and strategic rebalancing and adjustments to the portfolio as necessary. If a trustee uses an investment manager, the trustee must nonetheless monitor the investment manager’s performance and regularly review the portfolio.
Custody of Securities
A trustee should promptly collect all assets and related income and dividends. Moving forward, they should confirm that detailed records of all assets and transactions are maintained, including confirming that dividend notices and bond calls and maturities are tracked. If necessary, they can work with an investment manager to take action on stock warrants and subscription rights.
A trustee assumes legal responsibility for the proper administration of the trust and its assets. This means investigating claims against the trust, challenging invalid claims, and obtaining legal counsel when appropriate.
Maintaining accurate documentation is crucial for a trustee, including records of taxable income, asset acquisition dates, cost-basis and adjustments. This allows for timely filing of the annual trust tax returns and furnishing information to beneficiaries to file their tax returns, as necessary.
Many types of assets may be titled in a trust. Each asset must be managed according to its requirements:
- Conventional Financial Assets—Cash and traditional investments.
- Personal Property—The trustee must preserve the property and arrange to appraise the value of all assets held in the trust until they are distributed or sold. This can include artwork, family collections and heirlooms, household furnishings, jewelry and other personal possessions.
- Business Interests—The trustee may have to provide management, evaluation and consulting services for any business interests held in the trust.
- Other Unique Financial Assets—Copyrights and difficult-to-value assets may require specialized appraisals and management by the trustee.
Real Estate Assets
Real estate can be complicated, which is why It’s important for a trustee to know what’s expected of them. Before they can transfer the property to beneficiaries or other new owners, a trustee should:
- Ensure that the security, insurance and upkeep are maintained
- Check the status of taxes, assessments and liabilities against the property
- Confirm there is no environmental contamination; if so, take necessary steps to remedy
- Obtain appraisals, titles, deeds and abstracts
Post-Death Trust Administration
When the time comes, a trustee will have to ensure that the requirements of the governing bodies, including the courts and taxing bodies, are met. This could mean:
- Prepare, as required, federal and state estate tax, federal and state income tax, and gift tax returns
- Investigate, negotiate, and pay obligations to any creditors
- Determine a plan for final distributions pursuant to the trust agreement and communicate these to the beneficiaries
Only after these steps are taken care of can the trustee arrange for the final transfer of assets.
A Corporate Trustee May be the Best Option
Managing trusts and estate plans can be complex, confusing and emotional. A corporate trustee helps simplify the management of your trusts and estate planning by providing clarity on legal implications, acting as trustees and fiduciaries to provide advice that’s in your best interests, shouldering administrative duties, and coordinating with your financial advisors, planners, lawyers and accountants.
This information is not intended to be a substitute for a specific individualized tax or legal advice. We suggest that you discuss your specific situation with a qualified tax or legal advisor.
JD With more than 15 years of experience as a trust officer and estate planner, David crafts organized solutions for clients’ estate planning challenges. He helps clients identify their estate planning objectives, prioritize their wealth planning objectives, and structure wealth transfers to the next generation. He assists clients across the full range of estate planning, advising high net worth families, administering intricate trust relationships, and settling complex estates. Prior to...Read More