Though many people have heard of legal trusts for estate planning, few grasp the complex nature of these legal creations or how they are designed to work. A large part of that lack of knowledge is simply related to the prominent role that the Last Will and Testament plays in most people’s understanding of estate planning. To the average person, the management of an estate is thought to require nothing more than a will. Many people take the additional step of executing a Power of Attorney, but relatively few ever venture into the realm of the trust. The fact is, however, that trusts can be tremendously beneficial as part of a comprehensive estate planning strategy. That’s why it is important for everyone to understand the basic fundamentals of trust administration and how a trust can improve an estate plan.
What is a Trust Anyway?
Legal trusts are created when individuals execute documents that hand over the management of their assets to another person. If you were to create a trust for your estate, you would prepare – or have prepared for you – a document that assigned another individual to serve as the trustee. That trustee would then be responsible for managing all of the assets contained in your estate in a way that benefits your spouse, children, or other beneficiaries. The actual trust document would provide detailed instructions to guide the trustee as he or she fulfilled that obligation.
Unlike the simple transfer of assets that usually accompanies the execution of a will, the trust has actual ownership of the property. That ownership includes everything from the right to transfer and sell assets to the right to pass assets on to heirs when the trust’s creator dies. The beneficiaries’ rights are determined by the trust document, and will vary in accordance with the deceased’s express wishes. Thus, some trusts may provide that heirs can utilize certain assets owned by the trust. Other trust structures might be designed to transfer assets to heirs under certain conditions or in a specific way over time.
What is Trust Administration?
Trust administration encompasses everything that the trustee must do to fulfill the terms of the trust. Since a trust is charged with managing ownership interest over your estate property, he or she is considered to have a fiduciary duty to properly administer that trust. In a legal sense, that places upon him an affirmative obligation to ensure that he safeguards the assets as well as your heirs’ interests. As part of that obligation, he is prohibited from assigning your assets to himself, placing your property in jeopardy, or violating any of the express terms of the trust document.
Why Are Trusts Useful?
There are a number of different reasons for using trusts rather than other asset distribution methods. The most commonly recognized reason is, of course, asset protection and tax planning purposes. For the average person, however, the trust can offer an even wider range of benefits.
Trusts offer a measure of privacy that can be absent when dealing with wills in some jurisdictions. While the trust document has to be made available to all beneficiaries who request it, the details are not open to the public in the same way that the probate process is.
Trusts provide a way for parents to exercise more control over how their minor heirs receive their inheritance. Usually, parents are reluctant to leave large sums of money or property to minor children. Trusts can offer structured dispersal of assets, transferring ownership to a child when she reaches a certain age, or even distributing them over a period of time.
Trusts can ensure that an inheritance is not needlessly wasted by a spendthrift heir. By dispersing smaller asset amounts over time, the trust can guarantee that a beneficiary who has trouble managing money has access to regular trust benefits.
Trust administration is more time-efficient than probate proceedings, and are generally less expensive than probate as well. That can help to ensure that more of your assets are secured for distribution to your heirs.
Proper Trust Administration: The Trustee’s Obligations
Trustees have a responsibility to ensure that every aspect of the trust is properly administered. That obliges him to read and comprehend the document and then follow its dictates to the best of his ability. Obviously, this can present a problem for laypeople, since it involves interpreting the demands of a complex legal document without any formal training.
Depending on the trust’s provisions, the trustee may have to ensure that regular payments are made to the deceased’s heirs, provide for their education expenses, take care of living expenses, or other needs. At the same time, he will be obliged to invest the trust’s assets in a way that secures their value for the long-term.
The trustee is also responsible for taking care of the trust’s obligations under the law. Any income earned from the trust’s investment activity will come with tax obligations or bond costs. Unfortunately, tax issues can be a problem when trustees assume that the trust isn’t large enough to worry about tax concerns. All trustees need to be cognizant of the potential for tax liability. There may be other costs associated with the trust’s maintenance as well. The trustee must diligently ensure that those obligations are paid when due.
Finally, the trustee has a responsibility to avoid any actions that might cause him to place his own interests over those of the trust he is charged with protecting. His power and authority do not permit him to lend himself any money from the trust, nor to use its funds to enrich himself in any way. In fact, the trustee should do everything possible to avoid even the appearance of a conflict of interest.
Trust administration is an awesome responsibility that can be daunting for even the most dedicated trustees. There are many potential landmines and areas of potential controversy, and even the most seemingly straightforward trust documents can be difficult for the average person to fully understand. To avoid potential complications or confusion, it is always wise to consult with experienced legal counsel – both for the preparation of any trust document and for proper administration of its provisions. To find out more about the importance of effective trust administration and learn how an estate planning lawyer can help you with your trust needs, contact Robert Kulas Attorneys at Law in Port St Lucie and Vero Beach FL today.
