Being appointed as the Trustee of a loved one’s trust is an important responsibility that can initially feel overwhelming, particularly if you have never administered a trust before. You may assume that your primary responsibility is simply to distribute property to the beneficiaries according to the trust agreement. Trust administration, however, involves much more, including several important fiduciary responsibilities. Some trusts can be administered relatively quickly after the Grantor’s death, while others may continue for years or even generations, and understanding your responsibilities before you begin making decisions can help you administer a Florida trust efficiently while reducing the risk of disputes, financial losses, and potential personal liability. Toward that end, the Vero Beach attorneys at Kulas Crawford & Smith explain what you need to know about trust administration in Florida.
Your Role as Trustee Comes with Fiduciary Responsibilities
Before taking control of trust property, you should understand the significance of becoming a fiduciary. As Trustee, you are responsible for administering trust property for the benefit of the beneficiaries and according to the terms established by the person who created the trust. Your decisions should therefore be guided by the trust agreement and your fiduciary obligations rather than your personal preferences.
Among other things, this means you should act prudently and in good faith while remaining loyal to the interests you are charged with protecting. When a trust has multiple beneficiaries, you must also recognize that their interests may differ, and a decision that benefits one beneficiary could potentially disadvantage another. This can become particularly challenging when you are also a beneficiary. For example, you may be serving as Trustee of a trust created by your parent while simultaneously being entitled to a share of the trust property. You must distinguish between decisions you make in your fiduciary capacity and your personal financial interests.
You must also avoid using trust property for personal purposes, commingling trust funds with your own money, or entering transactions that create inappropriate conflicts between your interests and those of the beneficiaries. Even when you believe you are acting reasonably, failing to appreciate the fiduciary nature of your position can create disputes and potential liability.
The Trust Agreement Becomes Your Primary Guide
One of the first things you should do after accepting your appointment is carefully read the entire trust agreement. Do not assume you understand how the trust works because someone explained the general plan to you before the Grantor died. The written trust instrument governs your authority and provides the instructions you are expected to follow. The agreement should identify the beneficiaries and explain how trust property is to be managed and distributed. It may direct you to make certain distributions automatically while giving you discretion over others. The document may establish separate shares for beneficiaries, create continuing trusts, impose age requirements, or restrict the circumstances under which beneficiaries can receive principal. You should also identify provisions governing your powers as Trustee. The agreement may address investment authority, the sale of real property, professional advisors, Trustee compensation, accounting requirements, successor Trustees, and other administrative issues. Obtaining legal advice before acting is always better than attempting to correct an improper transaction afterward.
Determine What Changed When the Grantor Died
If you are administering a Revocable Living Trust after the Grantor’s death, the legal and practical operation of the trust may change significantly at that point. During the Grantor’s lifetime, the Grantor frequently serves as Trustee, retains substantial control over the property, and has the ability to amend or revoke the trust. After death, a formerly revocable trust generally becomes irrevocable, meaning you cannot simply change its provisions because you believe another arrangement would be more practical or fair. Your authority comes from the trust agreement and applicable law, not from your perception of what the Grantor might have wanted under current circumstances. You should determine whether you are responsible for administering the entire trust or only a particular portion of it. The document may require property to be divided into separate trusts following the Grantor’s death. It may also provide continuing benefits for a surviving spouse while preserving remaining assets for children or other beneficiaries.
Protecting Trust Property Should Be an Immediate Priority
Once you determine what the trust owns, you must protect those assets. If the trust owns a residence, vacation property, or rental property, determine whether the premises are secure and properly insured. A vacant residence may require special attention because insurance coverage can be affected when a property is no longer occupied. Utilities, mortgage payments, association fees, property taxes, repairs, and routine maintenance may also continue. Tangible property can require similar attention. Vehicles, jewelry, artwork, collections, and other valuable items should be secured and documented. Family members should not simply remove personal property because they believe they will eventually inherit it. Financial accounts should also be protected against unauthorized access. As Trustee, you should determine what documentation financial institutions require before recognizing your authority.
Keep Trust Finances Separate from Your Personal Finances
Depending upon the circumstances and tax status of the trust, you may need to obtain an Employer Identification Number from the Internal Revenue Service and establish appropriate financial accounts in the trust’s name. Once established, those accounts can be used to receive trust income, pay expenses, and make beneficiary distributions. Commingling trust assets with your own assets creates unnecessary problems, makes accounting more difficult, and can raise questions about whether trust funds were improperly used. Trust income should be deposited into appropriate trust accounts, expenses should be paid from those accounts when appropriate, and beneficiary distributions should be documented.
Communication with Beneficiaries Can Prevent Unnecessary Conflict
After a death, beneficiaries are often uncertain about what happens next and they may not understand why distributions cannot be made immediately, how long administration will take, or what information they are entitled to receive. Silence can quickly create suspicion. As Trustee, you should identify the beneficiaries and maintain accurate contact information. You should also provide appropriate information about the administration and respond to reasonable inquiries.
Trust Expenses, Debts, and Taxes Need Attention Before Final Distributions
A common first-time Trustee mistake is focusing on distributions before determining what obligations must be satisfied. Trust property can generate continuing expenses. Real estate may have mortgages, taxes, insurance premiums, utilities, repairs, and maintenance costs. Investment accounts may generate fees. Professional assistance from attorneys, accountants, appraisers, property managers, or other advisors may also create legitimate administrative expenses. In addition, there may be tax obligations, final expenses, or creditor issues, that must be addressed before distributions can be made. Making substantial distributions before these obligations are understood can create serious problems. If you distribute most of the available cash and subsequently discover a significant tax liability or necessary property expense, you may have insufficient funds remaining to satisfy it.
You Do Not Have to Administer a Florida Trust Alone
One of the most important things to understand as a first-time Trustee is that accepting fiduciary responsibility does not mean you must personally handle every legal, tax, investment, accounting, and property-management issue that arises. Trust administration frequently requires assistance from multiple professionals. An attorney can help you interpret the trust agreement and understand your fiduciary obligations. An accountant can address tax filings and complex financial reporting. Financial professionals may assist with investment management, while appraisers, real estate professionals, and business advisors can provide specialized expertise when the trust owns those types of assets. Seeking appropriate professional assistance can be part of prudent trust administration rather than an indication that you are incapable of serving.
Can We Help You with Trust Administration in Florida?
To learn more, please join us for an upcoming FREE seminar. If you would like help with trust administration in Florida, please contact an experienced Vero Beach trust administration attorney at Kulas Crawford & Smith by calling (772) 398-0720 to schedule a consultation.
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