About eighty-five percent of the clients we help create an estate plan use a Revocable Living Trust agreement as the centerpiece of their plan. Once the client’s assets are properly organized under the trust — something Clarity Legal Group takes the lead in making happen — the client(s) controls them just as they did before the reorganization, as no new rules to follow, has no separate accounting to keep track of and has no separate tax reporting. It’s business as usual.
Even better, when the client dies, the person he or she has chosen to administer their estate — an adult child, for example — does not have to take these assets through the court supervised process known as probate, and thus avoids all of the rules, recording keeping, reporting, audit and related court fees which can make things a real burden. The work to be done with the trust at this time is much less, but it is more complicated that the trust is during my client’s life.
When the client dies, the revocable trust becomes irrevocable, and the administration of an irrevocable trust does have rules, accounting, and separate tax reporting. At Clarity Legal Group, we have a team dedicated to helping Trustees who are faced with administering a trust that was created by someone else. Anytime a trust is created the Trustor (the person who creates the trust) must appoint a person who will serve as successor Trustee to themselves. The Trustee is responsible for administering the trust. This would likely be a spouse, adult child, sibling, or other family member. When nonprofessionals are suddenly faced with acting in the role of a Trustee frequently feel overwhelmed about what to do.
At Clarity Legal Group, we address this early and often. First, we host an annual Fiduciary School for our clients and their friends and family members who might find themselves serving as a trustee (or executor, power of attorney or health care power of attorney). We expect those trustees who have attended these programs to be more confident handling their responsibilities. Still, we think in most cases, family trustees will need the guidance of an attorney to make sure they get things right.
Trust Fundamentals
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 Trustor or Grantor, who transfers property to a Trustee. The Trustee holds that property for the trust beneficiaries. The beneficiary of a trust can be an individual, an entity (such as a charity or political organization), or even the family pet. A trust must have at least one beneficiary but may have an unlimited number of beneficiaries. A trust may have both current and future beneficiaries. Some estate plans contain trusts that do not come into existence until the person dies, and indeed the Revocable Living Trusts I described above, which are created during a person’s life and used during their life, commonly contain trusts — let’s call them sub-trusts — that come into existence for the beneficiaries after the death of the Trustor. As I mentioned above, a revocable living trust typically becomes irrevocable upon the Trustor’s death. These sub-trusts for beneficiaries are also irrevocable trusts.
What Is Involved in Trust Administration for an Irrevocable Trust?
The individual (or entity such as a bank) named as the Trustee in the trust agreement is responsible for administering the trust. The overall job of a Trustee is to protect and manage trust assets and administer the trust according to the terms found in the trust agreement created by the Trustor. The day-to-day duties and responsibilities of a Trustee, however, can be varied and will likely include the following:
- Identifying, managing and protecting trust assets
- Opening accounts under the trust
- Making sure assets that belonged to the Trustor but were not owner under the trust or directed to the trust by other means are not commingled with trust assets
- Abiding by the trust terms unless they are impossible, illegal, or unconscionable
- Investing trust funds using the an standard of reasonableness such as the “Prudent Investor” or “prudent person” standards.
- Monitoring trust investments
- Paying creditors
- Paying taxes
- Paying trust expenses
- Communicating with trust beneficiaries
- Making discretionary decisions
- Distributing trust funds to beneficiaries
- Approving or denying distributions if given discretionary authority
- Keeping detailed trust records
- Ensuring that trust tax returns are prepared
Exactly how cumbersome and complicated the duties and responsibilities a Trustee has when administering a trust will depend on several factors, including the value and complexity of the trust assets and the type of trust being administered.
Does Trust Administration Require a Lawyer?
I’ve seen Trustees make mistakes in administering trusts after someone’s death that were a product of nothing other than a lack of patience with the rules of administering accounts held under a revocable trust. A nonprofessional called upon to administer a trust is more than capable of doing this, but they are being asked to do something with which they are familiar, managing a checking account for example, subject to rules and in a context with which they are unfamiliar. All they have to do to get this right is go slow, don’t assume, and when in doubt, get help. That’s a whole lot harder than it sounds.
Although you are not required to hire an attorney to help you administer a trust, if you are the Trustee there are several reasons to do so anyway. As the Trustee of a trust, you are in a fiduciary position, meaning that you must exercise the utmost care when handling the trust assets. A Trustee must be more careful with trust assets than they would be with their own assets and must always make decisions that are in the best interest of the trust beneficiaries, both current and future (if applicable). To do that, a Trustee must have at least a basic understanding of the applicable state and federal laws relating to trusts and an understanding of the financial concepts necessary to successfully invest and grow the trust assets. The Trustee must also have a clear understanding of the trust purpose and be able to follow the trust terms, whether you agree with those terms or not. Under some circumstances, a Trustee can even be held personally liable for errors made while acting as the Trustee. Particularly if you have never acted as the Trustee of a trust, it only makes sense to retain the services of an experienced trust administration attorney to help you fulfill your role as Trustee so that you avoid making costly errors. The attorneys and professionals at Clarity Legal Group can help.
Contact Durham Trust Lawyers
If you have additional questions or concerns regarding acting as the Trustee during the administration of a trust, please contact the Durham trust lawyers at Clarity Legal Group by calling us at 919-484-0012 or contact us online.
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