Not all that long ago, trusts were used almost exclusively by wealthy families as a tool to pass down the family wealth while maintaining a certain degree of control over how that wealth is used by future generations. Trust have evolved, however, to the point where it is now common to find a trust in even a relatively simple estate plan. When a trust is created, the trust creator must appoint a Trustee to administer the trust. If you recently learned that you were appointed to be the Trustee of a trust, and you have never before administered a trust, you may be a bit intimidated at the prospect of doing so. To provide first-time Trustees with some guidance, we offer a basic trust administration checklist.
What Does It Mean to Administer a Trust?
The Trustee’s overall job is to administer the trust. Administering a trust entails managing and investing the trust assets and following the trust terms, created by the Settlor, to achieve the stated trust purpose. The trust terms, which are found in the trust agreement, will dictate when trust assets are to be distributed as well as identify the beneficiary that is to receive the distribution. The trust may also provide details that direct how the trust assets are to be invested. The Trustee must abide by all trust terms unless a term is illegal, impossible, or unconscionable.
The New Trustee’s Checklist
No two trust agreements are identical, meaning the administration of no two trust will be exactly the same. Nevertheless, there are enough some common steps a Trustee should take when administering a trust to create a checklist.
- Gather and review all estate planning documents. If the Settlor is recently deceased, get copies of all estate planning documents, such as the Last Will and Testament, life insurance policies, powers of attorney, and any other documents that might be connected to the trust you are administering.
- Review the trust agreement. Take your time and read through the trust agreement several times. Unless you are familiar with the legal jargon, you may not understand everything right away – but you need to understand it all eventually.
- Consult with an attorney and financial advisor. Most Trustee’s retain an experienced trust attorney to help them administer the trust to prevent making costly errors. At a bare minimum, go over the trust agreement with an attorney to make sure you understand all the terms. Also, meet with a financial advisor who can help guide you with regard to investing the trust assets.
- Transfer assets into the trust. Often, after the death of a Settlor, assets must be transferred into the trust from the Settlor’s estate. This should be done as soon after the Settlor’s death as possible.
- Create an inventory. Once you have transferred all known assets into the trust, create an inventory so you know what the trust owns, where the assets are located, and what they are worth.
- Establish a bank account. A trust is a separate legal entity for tax purposes. A trust also needs its own back account to pay trust expenses.
- Communicate with beneficiaries. Let the beneficiaries of the trust know that you are the Trustee and that you will be handling the administration of the trust. You have an ongoing duty to communicate with the beneficiaries and keep them updated on trust business.
- Keep detailed records. Everything you do as the Trustee should be well documented. This protects you in the event that questions arise regarding your role as Trustee and it allows you to be compensated for acting as the Trustee.
Caution: This checklist is not intended to be a substitute for the assistance of an experienced and qualified attorney. There are many steps a trustee must take and they must be done so properly or else the Trustee could be held liable for any errors or omissions in performing his or her duties.
Please download our FREE estate planning checklist. If you have additional questions or concerns about trust administration, contact us at the Northern California Center for Estate Planning & Elder Law by calling (916)-437-3500 or by filling out our online contact form.