Were you recently notified that a family member or close friend named you as the Trustee of a trust? If so, and this is the first time you have served as a Trustee, you are probably feeling a little confused and somewhat intimidated by the prospect of administering the trust. While these feelings and concerns are certainly common, keep in mind that the Settlor (the person who created the trust) obviously had a considerable amount of faith and trust in you given that he/she named you as the Trustee. Moreover, it is not necessary to carry out your duties and responsibilities alone. In fact, most Trustees retain the services of an experienced trust administration lawyer to help them.
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 Maker or a 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 as well as having both current and future beneficiaries. All trusts fit into one of two categories – testamentary or living (inter vivos) trusts. Testamentary trusts are typically activated by a provision in the Settlor’s Last Will and Testament and, therefore, do not become active during the lifetime of the Settlor. Conversely, a living trust activates during the Settlor’s lifetime. Living trusts can be further sub-divided into revocable and irrevocable living trusts.
Trustee Duties and Responsibilities
The role of Trustee is a fiduciary role, which, in this case, means that you must be more careful with the trust assets than you would be with your own assets and that you owe a duty of the utmost care to the trust and to the beneficiaries of the trust. The duties and responsibilities of a Trustee throughout the administration of a trust are numerous and varied, including:
- Managing and protecting trust assets
- Abiding by the trust terms unless they are impossible, illegal, or unconscionable
- Investing trust funds using the “Prudent Investor Standard”
- Monitoring trust investments
- Communicating with trust beneficiaries
- Resolving conflicts among beneficiaries
- Making discretionary decisions
- Distributing trust funds to beneficiaries
- Approving or denying distributions if given discretionary authority
- Keeping detailed trust records
- Preparing and paying trust taxes
Why Do You Need a Trust Administration Lawyer?
While there is no legal requirement that prompts a Trustee to hire a trust administration lawyer to help, doing so is the best way to prevent costly mistakes on your part. Many of the duties and responsibilities of a Trustee require more than a passing knowledge of the law and/or finance concepts and strategies. No matter how good your intentions may be, without the advice and guidance of an experienced attorney mistakes are likely, such as:
- Misunderstanding a trust term. Vague or confusing terms in the trust agreement must be clarified immediately so mistakes are not made.
- Not understanding and/or using the “prudent investor standard.” When you invest assets owned by a trust, you must do so using the “prudent investor standard” which essentially means you must avoid risk, guard the trust principal, and be more careful with the assets and income than you would be with your own assets and income.
- Unintentionally leaving out future beneficiaries. If the trust has both current and future beneficiaries, all decisions you make must consider the best interest of both classes of beneficiaries.
- Not clearly understanding and/or honoring the trust purpose. It is very difficult to set aside your own opinions; however, as the Trustee, everything you do must further the Settlor’s intended purpose and must abide by the trust terms unless a term is illegal or unconscionable.
- Creating a conflict of interest. If the Settlor was a family member or friend, there is a good chance you know at least one beneficiary. This can create a conflict of interest if you allow it.
- Tax errors. A trust is a separate legal entity. Therefore, a trust must file a trust tax return each year. If any taxes are due, they must also be paid in a timely manner.
Ignorance is not an acceptable excuse if you make a mistake as Trustee and in some cases, you could be held personally responsible for an error. Having an experienced trust administration lawyer on your side is the key to successfully fulfilling your role as Trustee.
Contact a Trust Administration Lawyer
For more information, please join us for an upcoming FREE seminar. If you have additional questions or concerns regarding trust administration in the State of Florida, contact the experienced trust administration lawyers at Kulas & Crawford by calling (772) 398-0720 to schedule an appointment.