A trust can be a beneficial addition to your estate plan for a number of reasons. Not only can a trust help your estate avoid probate, but it can also help protect your assets, plan for your incapacity, or even protect your minor child’s inheritance. If you decide to incorporate a trust into your estate plan, you will need to appoint a Trustee to administer the trust. With that in mind, lets explore why you should consider a professional Trustee.
What Is a Trust?
A trust is a legal relationship where property is held by one party for the benefit of another party. The person who creates a trust is referred to as the “Settlor”, “Trustor” or “Grantor.” The Settlor transfers property to a Trustee, appointed by the Settlor. The Trustee holds that property for the trust’s beneficiaries, also named by the Settlor. The overall job of a Trustee is to protect and invest trust assets and to administer the trust terms found in the trust agreement. Trusts all fall into one of two categories – testamentary or living trusts. A testamentary trust is activated by a provision in the Settlor’s Will at the time of death whereas a living trust activates once all formalities of creation are in place and the trust is funded. Living trust can be further divided into revocable and irrevocable living trusts.
What Are the Duties and Responsibilities of a Trustee?
The Trustee of a trust is responsible for managing the trust assets as well administering the trust using the trust terms created by the Settlor. Among the numerous and varied duties and responsibilities of a Trustee are the following:
- Managing and protecting trust assets
- Abiding by the trust terms unless they are impossible, illegal, or unconscionable
- Investing trust funds using the “Prudent Investor Standard”
- Monitoring trust investments
- Communicating with trust beneficiaries
- Resolving conflicts among beneficiaries
- Making discretionary decisions
- Distributing trust funds to beneficiaries
- Approving or denying distributions if given discretionary authority
- Keeping detailed trust records
- Preparing and paying trust taxes
Why Might a Professional Trustee Be the Best Choice?
Settlors often make the mistake of appointing a spouse, family member, or close friend as the Trustee of their trust without objectively considering whether that person is the right person for the job. Often, the better choice is to appoint a professional Trustee for several reasons, including:
- Experience – successfully administering a trust requires a certain amount of legal and financial knowledge and experience. The Trustee of a trust should ideally be familiar with all the applicable state and federal laws that govern trust administration. In addition, a Trustee needs to have the financial wherewithal to invest the trust assets in a way that they will grow over the lifetime of the trust. Most of the time a professional Trustee will have more experienced and knowledge about trust administration than a spouse/family member/friend has.
- Objectivity – a Trustee may have the authority to make discretionary disbursements if certain conditions are met. A professional Trustee is typically more likely to be objective when deciding if a request for a disbursement should be granted because the Trustee does not know the beneficiary on a personal level.
- Conflicts of Interest– the Trustee of a trust is often called upon to resolve conflicts among beneficiaries and is always required to try to prevent them from occurring in the first place. When the Trustee knows the beneficiaries on a personal level it can be must more difficult to avoid, or help resolve, conflicts. Worst still, the Trustee can easily run into a conflict of interest that could threaten the success of the trust.
- Willingness to Serve – Settlors often make the mistake of assuming that the person they appoint as Trustee is willing and able to serve. Unfortunately, that is not always the case, particularly if the trust is a testamentary trust because it means that the Settlor recently died. A spouse, family member, or friend may not want to act as your Trustee while grieving your recent death. With a professional Trustee these issues are not a concern.
Contact Roseville Trust Administration Attorney
Please download our FREE estate planning checklist. If you have additional questions or concerns about appointing a professional Trustee for your trust, contact us by calling (916)-437-3500 or by filling out our online contact form.