If you’ve had a relative or close friend name you as the trustee of his or her trust, chances are that you felt extremely honored to be considered for the role. When that person actually passes away, however, that honor can quickly become a weight upon your shoulders – especially if you have little experience with financial or legal matters. The fact is that it is not at all uncommon for trustors to name trustees who have no prior skill or experience with such concerns, and that can create a great deal of stress and anxiety for any trustee placed in that unfamiliar situation. Fortunately, there are some best practices that can help to make sense of trust administration for trustees who find the whole process overwhelming.
Remember to Document Everything
Documentation is critical for any trustee. You should begin by getting organized and creating a system for efficient documentation of every decision that you make. If you distribute funds to a beneficiary, document the transaction and the reason it occurred. If you make an investment, document the activity and the reason you chose that opportunity. If you talk to beneficiaries or others about the trust, document that too. In short, if you do anything related to trust business, record that activity and your rationale at the time.
Understand Your Duties
While being named as trustee might initially seem like an honor, you will soon realize that it is an honor that comes with tremendous responsibilities. You have specific duties that must be met. These include the following obligations:
- You must faithfully carry out the terms of the trust.
- You must never place your own interests above those of the trust, even if you are named as a beneficiary.
- You should never lend yourself money from the trust, or use it to benefit you in any way. You also should not buy from or sell to the trust, unless the terms of the trust specifically direct or allow you to do so.
- Trustees have to avoid even the appearance of impropriety, including any conflict of interest.
- You must communicate with beneficiaries and provide an accounting of activities related to the trust.
- You have a fiduciary duty to the trust and to all beneficiaries.
- You must prudently invest trust assets.
- You have to ensure that the trust’s tax obligations are met in a timely manner.
You get the idea. Being responsible for trust administration is an awesome burden that can involve many different areas of legal concern. Obviously, this is not something that should ever be taken lightly.
Get Help with Investments
One of your duties involves investing. The standard best practices for investment of trust assets involves the use of the Prudent Investor Rule. That rule requires you to create an investment policy that prudently takes into account the risks associated with any investment opportunity in light of the overall investment objectives. In any transaction, it is not the actual potential for gain that matters, but the balance between the risk and return for the entirety of the estate’s assets. Thus, a trustee would be expected to develop an investment strategy that uses balance and diversity of investment vehicles to provide the best overall opportunity for return on the estate as a whole.
Account for Principal and Income
Depending on the terms of the trust and its distribution intent, you may have either an easy or difficult time accounting for principal and income. In cases where distributions are ongoing, then you will need to ensure that the method used to account for these things properly separates income from principal so that the latter can be used in accordance with the terms of the trust. For most non-professional trustees, this accounting need is often best met by hiring an accountant or attorney with experience in managing principal and income concerns.
Consider the Beneficiaries First!
Maintain open lines of communication with beneficiaries at all times to fulfill your duty to keep them up to date on how the trust is being administered. Proper notification and communication can provide you with a layer of protection against negative challenges from disgruntled heirs. As you fulfill your duty to place the beneficiaries first, you should ensure that you avoid all conflicts of interest so that there is not even the appearance that something might be amiss.
This last one is an element of trust administration that many trustees neglect – and often to their own detriment. The fact is that managing a trust can be a complicated process that few laypeople are adequately equipped to handle without major problems. Never be afraid to get the help you need to fulfill any of your designated duties. When you seek out appropriate assistance, you will be enhancing the administration of the trust even as you protect yourself against possible liability for mistakes that might be made.
While it is important to obtain legal counsel from an estate planning attorney, there are other areas of expertise that should be addressed as well. As noted above, you may need to retain an accountant to help navigate the details of the trust’s finances. At some point, you might need an appraiser to determine the value of assets that need to be liquidated. When tax issues are involved, it is always wise to defer to an actual tax expert. Since the costs for these services are paid for by the trust, you should be judicious in your use of such assistance. At the same time, however, you should never hesitate to get the help you need to ensure that the trust is properly administered.
When it comes to experienced estate planning attorneys to help guide you through the trust administration process, you’ll need look no further than Kulas & Crawford. Attorneys at Law. Our trust administration experts can help you navigate every step of the administration process, ensuring that your time as Trustee is as stress-free as possible. To find out more about how we can help you better manage your trustee duties, visit us at our website or call (772) 398-0720 today!