Were you recently informed that you are the Trustee of a trust? If so, and this is the first time you have served as a Trustee, you are probably feeling overwhelmed and wondering where to begin. Under the circumstances, it is in your best interest to consult with an experienced estate planning attorney as soon as possible to obtain individualized advice and guidance. In the meantime, however, it may be beneficial for you to learn more about trust administration and your role and Trustee. With that goal in mind, the Florida estate planning attorneys at Kulas & Crawford put together the following Trustee’s guide to trust administration.
If you are unfamiliar with trusts, it helps to learn some basics. 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 referred to a Trustor or a Grantor, who transfers property to a Trustee. The Trustee holds that property for the trust’s beneficiaries. The beneficiary of a trust can be an individual, an entity (such as a church), or even the family pet. A trust can have an unlimited number of beneficiaries and may include both current and future beneficiaries.
All trusts are broadly divided into two categories – testamentary and 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. A living trust, as the name implies, activates during the Settlor’s lifetime. Living trusts can be further sub-divided into revocable and irrevocable living trusts.
Trust Administration – Tips for the Trustee
As the Trustee of a trust, the following tips may help you to administer the trust without making any serious mistakes:
- Read the trust agreement several times. The trust agreement is essentially your guidebook for administering the trust. Read through the agreement several times to make sure all the provisions are clear. Pay particular attention to the trust purpose and to any guidance regarding investing the trust assets.
- Inventory and familiarize yourself with the trust assets. A trust can be funded using almost any type of assets. Make sure you have a record of every asset owned by the trust.
- Consult with an attorney. If you have yet to do so, now is a good time to consult with an experienced estate planning and trust administration attorney. Unless you have a legal background, you will likely need to keep an attorney onboard to ensure that you abide by both the state and federal laws pertaining to the trust.
- Keep detailed records. A Trustee is always required to keep detailed records of all trust business. This includes financial records as well as records showing when you communicated with the beneficiaries and more mundane things such as this.
- Always use the “prudent investor” standard. A Trustee is legally required to use the “prudent investor” standard when investing trust assets. This means you must use even more caution when investing trust assets than you would use investing your own money. Moreover, you must invest using the provisions in the trust agreement created by the Settlor. If the Settlor was silent with regard to investing strategies, you should avoid risk when making investments and focus more on protecting the principal assets than on growth or income.
- Communicate with beneficiaries. Beneficiaries are entitled to be kept up to date on trust business. All beneficiaries should be informed of major changes in the trust assets or other important trust business. It would also be nice to hear from you on a regular basis just to update the beneficiaries.
- Retain the services of a tax professional. Because a trust is a separate legal entity, a trust tax return must be filed every year. Unless you have a background in finance and/or accounting, the services of a tax professional will be needed to ensure that the annual returns are properly filled out and any day obligation due is paid.
For more information, please join us for an upcoming FREE seminar. If you have additional questions or concerns regarding trust administration or the role of Trustee, contact the experienced Florida estate planning attorneys at Kulas & Crawford by calling (772) 398-0720 to schedule an appointment.