One of the most important components of a comprehensive estate plan is a trust. Whether you choose to create a testamentary trust or a living trust, one step you must take during the creation of your trust is appointing a Trustee. A common mistake is to appoint a loved one without truly considering if that individual is the best choice for the job of Trustee. As the estate planning lawyers at Sandoval Legacy Group, A Professional Law Corporation point out, having trust in your Trustee is important; however, it should not be the only consideration when choosing someone to administer your trust.
What Is a Trust?
A trust is a legal relationship where property is held by one party for the benefit of another party. The person who creates a trust is referred to as the “Settlor”, “Trustor” or “Grantor.” The Trustor transfers property to a Trustee. The Trustee holds legal title to the trust property. The trust’s beneficiaries, who are also designated by the Trustor, hold beneficial title to the trust property. Trusts all fall into one of two categories – testamentary or living trusts. A testamentary trust is activated by a provision in the Will at the time of death of the Will’s creator, known as the Testator. A living trust is created during the life of the Trustor, and typically hold its assets for the benefit of the Trustor during his or her lifetime and the for family members and other loved ones after the Trustor’s death. Living trusts can be further divided into revocable and irrevocable trusts.
Trustee Duties and Responsibilities
The Trustee of a trust is charged with managing and investing trust assets and administering the trust according to the terms created by the Trustor. All too often, a Trustor appoints a Trustee without having a clear understanding of the numerous and varied duties and responsibilities that accompany the job of Trustee, including:
- Managing and protecting trust assets. Trust assets can include almost anything of value. The Trustee is responsible for managing all trust assets. Consequently, this could mean something as simple as reconciling bank statements or something as complex as maintaining real property.
- Abiding by the trust terms. The Trustee is bound by the terms of the trust unless they are impossible, illegal, or unconscionable.
- Honor the trust purpose. Most trusts clearly state what the trust purpose is so there is no ambiguity. The Trustee must honor the trust purpose at all times and when making all decisions.
- Using the “Prudent Investor Standard.” The Trustee is responsible for managing and investing assets that belong to the trust and that are intended to benefit the beneficiaries of the trust. As such, a Trustee is a fiduciary. Investments must be made using the “prudent investor standard” which means guarding the principal is important and trust assets should be invested in a manner to achieve the trust purpose while taking the last amount of risk necessary to achieve that purpose.
- Keeping trust beneficiaries apprised of trust business. A Trustee has an obligation to keep the beneficiaries of the trust informed of trust business on a regular basis and to respond to questions or inquiries from beneficiaries in a timely manner.
- Conflict resolution. Disputes among beneficiaries happen with some frequency. The Trustee must remain neutral in a conflict and attempt to resolve the conflict before it escalates. If the trust included future beneficiaries along with current ones, the Trustee needs to consider their best interest as well when resolving conflicts or making decisions.
- Making discretionary decisions. A Trustee may have the power and authority to make discretionary decisions regarding investments and/or disbursements. When using that authority, a Trustee must always be guided by the best interests of the beneficiaries.
- Distributing trust funds to beneficiaries. The terms of the trust will dictate when and how non-discretionary distributions are to be made. The Trustee must ensure that those distributions are made on time.
- Keeping detailed trust records. Legally speaking, a Trustee is accountable for the success, or failure, of a trust. In fact, a Trustee can be held personally liable, in some situations, for errors made during the administration of a trust. A Trustee should always keep detailed records that show all trust business, in case those records are ever needed.
- Preparing and paying trust taxes. A trust is a separate legal entity. As such, a trust is taxed. The Trustee is required to complete a tax return for the trust each year and must make sure that any taxes due on behalf of the trust are paid on time.
Contact Riverside Trust Lawyers
If you have additional questions or concerns regarding the choice of Trustee for your trust, contact the experienced Riverside trust lawyers at Sandoval Legacy Group, A Professional Law Corporation by calling (951) 888-1460 to schedule an appointment.
Have a question? Ask Dennis.
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