Trusts were once used almost exclusively by wealthy families as a way to guard and pass down the family wealth. Today, however, trusts are frequently included in the average person’s estate plan. One thing that all trusts have in common is the need to appoint a Trustee. If you were recently informed that someone appointed you to be the Trustee of a trust, you may be a bit intimidated at the prospect of fulfilling your duties as Trustee. To help get you started, we offer some tips for the first-time Trustee.
What a Trustee Needs to Know about Trusts
Before discussing your role as the Trustee of a trust, it is imperative that you learn some trust 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 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. A trust may have 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. If you are the Trustee of a testamentary trust, it means that the Settlor is no longer around to confer with regarding his/her intentions. All you have to go on are the terms of the trust itself. Conversely, a living trust, activates during the Settlor’s lifetime. Living trusts can be further sub-divided into revocable and irrevocable living trusts. As the Trustee of an irrevocable living trust you will not need to worry about the Settlor making any changes to the trust because he/she may not do so once the trust is active. If the trust is a revocable living trust, however, the Settlor may modify or terminate the trust at any time.
Tips for the New Trustee
- Make sure you understand the trust agreement. Read through the trust agreement. Then read it again – and then read it again. A trust agreement can be relatively simple; however, most are complex documents full of legal concepts and jargon that probably sounds foreign to you unless you have a legal background. An accurate and complete understanding of the agreement, however, is crucial to performing your job as Trustee without making any serious mistakes.
- Evaluate, inventory, and secure the trust assets. A trust can be funded using almost anything of value, including cash, securities, and/or real property. If the trust in question owns numerous assets, you need to have an accurate accounting of those assets and their value from day one.
- Create an investment plan. The trust agreement should provide guidance with regard to investing. Some Settlors want the Trustee to be aggressive with trust assets while others are very risk averse. First, you need to figure out what the Settlor’s position is on investing. Then you need to create a short and long-term investment plan.
- Seek, and make use of, professional assistance. Unless you happen to have a background, or be educated, in the legal or financial field, you should consult with the appropriate advisors. Most Trustees retain the services of an estate planning attorney to help administer the trust and a financial advisor to help create an investment plan.
- Keep detailed records. You will be required to communicate with beneficiaries on a regular basis and provide them with updates about trust business. In order to fulfill that obligation, you need to keep detailed records of all trust related business, including, but not limited to, investments, trust expenses, disbursements, and taxes.
Please download our FREE estate planning checklist. If you are a first-time Trustee and you have additional questions or concerns, 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.