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What duties and responsibilities come with the honor of being named a trustee? Let's start from the beginning. What is a trust? It's different from a will, but often has much the same purpose: It provides instructions for handling someone's final affairs and makes sure the decedent's assets, for example, are distributed according to his or her wishes. The trustee manages and distributes the trust assets according to the terms.
What do you need to know as a trustee? The grantor — the person who creates the trust — should make you familiar with the trust and its provisions. You need to know where the trust document and all other important papers are located, including insurance policies such as those pertaining to medical, life, disability and long-term care. Often people are private about their finances, but you can point out that you want to help make sure appropriate titles and beneficiary designations are in order.
Your responsibilities are to safeguard assets for others. You must follow the instructions in the trust document.
- Don't mix trust assets with your own — keep separate checking accounts and investments.
- Don't use trust assets for your own benefit, unless the trust authorizes it.
- Treat trust beneficiaries the same — don't favor one over another unless the trust expresses the differentiation.
- Invest trust assets in a prudent, conservative manner to grow with minimum risk.
- Keep accurate records, file tax returns and report to the beneficiaries as the trust requires.
You are not expected to be a legal, tax or financial expert. Indeed, you can — and should — work with legal and financial professionals to get their advice. However, the ultimate responsibility is yours when it comes to prudent management of trust assets on behalf of the beneficiaries.
When it is time to take over as a trustee, the grantor's attorney can prepare a certificate of trust to prove you have legal authority to act. If there are minors or other dependents, you may need to look after their care. The trust may have specific instructions. An attorney can help in appointing a guardian.
You may need to put together a budget for ongoing expenses. Consult with professionals before you sell any assets. Use assets to take care of the grantor and any dependents. Keep a ledger of income received and bills paid.
If you take over when a grantor dies, you will have essentially the same duties as an executor named in a will. You will be responsible for seeing that everything is done in a timely manner. Trustees may be entitled to reasonable compensation — the trust document should give guidance.
Your work will be enhanced if you put together a team of advisors and keep accurate records and accounting. You may step down and allow a successor trustee to assume the tasks if you cannot carry them out effectively. Trustees bear a great personal responsibility to ensure that a trust is handled properly. Contact me if you need advice about serving as a trustee or if you think you need to establish a trust.
I provide the information in this e-newsletter for general guidance only, and it does not constitute legal advice, tax advice, accounting services, investment advice, or professional consulting of any kind. The information provided herein should not be used as a substitute for consultation with professional tax, accounting, legal, or other competent advisers. Before making any decision or taking any action, you should consult a professional adviser who has been provided with all pertinent facts relevant to your particular situation. Tax articles in this e-newsletter are not intended to be used, and cannot be used by any taxpayer, for the purpose of avoiding accuracy-related penalties that may be imposed on the taxpayer. The information is provided "as is," with no assurance or guarantee of completeness, accuracy, or timeliness of the information, and without warranty of any kind, express or implied, including but not limited to warranties of performance, merchantability, and fitness for a particular purpose.