In recent years, trusts have become a commonplace addition to even the most simple estate plan. Unfortunately, the creator of a trust doesn’t always discuss the appointment of a Trustee with the intended Trustee. If you recently learned that you were appointed as a Trustee, and you have never before served as a Trustee, you probably don’t know where to begin in your trust administration duties. The following trust administration checklist will help you get started in your new role as Trustee.
How a Trust Works
A trust is a legal relationship that entails property being held by one party for the benefit of another. A trust is created by a Settlor, who transfers property to a Trustee, also named by the Settlor. The Trustee holds that property for the benefit of the beneficiaries named in the trust agreement. All trusts are first divided into one of two categories – testamentary or inter vivos – the latter of which is more commonly referred to as a living trust. A testamentary trust is a trust that arises upon the death of the Settlor and which is typically activated by a provision in the Settlor’s Will. A living trust is a trust that takes effect as soon as all the formalities of creation are in place. Living trusts are further divided into revocable and irrevocable trusts.
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.
Trust Administration Checklist for the New Trustee
No two trust agreements are identical, meaning the administration of no two trusts will be exactly the same. Nevertheless, there enough 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 terms, you may not understand everything right away – but you need to understand it all eventually.
- Consult with an attorney and financial advisor. Most Trustees 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.
- 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 bank 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.
Contact a Trust Administration Lawyer
Please feel free to download our FREE estate planning worksheet. If you have additional questions or concerns regarding trust administration, contact a New York trust administration lawyer at the Law Offices of Kobrick & Moccia by calling 800-295-1917 to schedule your appointment.