One of the most common additions to a well thought out and comprehensive estate plan is a trust agreement. A trust allows you to accomplish a wide range of estate planning goals, such as incapacity planning, asset protection, or probate avoidance. The flexible nature of trusts is largely responsible for the popularity of trusts in the average estate plan. If you are planning to include a trust in your estate plan you will need to make a number of important decisions during the creation of the trust agreement. One of the most important of those decisions is the appointment of a Trustee to manage your trust assets and oversee the administration of the trust terms. Choosing the right Trustee is essential to a successful trust administration– but how do you know who to appoint as your Trustee?
What Does Trust Administration Include?
In order to understand trust administration, it helps to have a better understanding of how a trust works. A trust agreement is a legal document that sets forth the terms under which a Trustee will legally hold assets for the benefit of a third person, or persons. The Settlor of the trust (the person who creates the trust) creates the trust terms. Those terms can be anything the Settlor wishes as long as they are not illegal or unconscionable. The Trustee is legally required to abide by those terms and to always make decisions with the stated trust purpose in mind. Administering a trust involves several important duties and responsibilities.
First, the Trustee is required to manage the trust assets and keep those assets secure. The Trustee may also be required to invest some, or all, of the trust assets, depending on the trust terms. The Trustee must use the “prudent investor standard” when investing assets, which essentially means the Trustee must not take risks and must be more careful with trust assets than he/she would be with his/her own assets. The trust agreement will often provide more guidance for the Trustee with regard to the type of investments to make and the degree of risk the Trustee can take when investing trust assets. Trust administration also requires the Trustee to distribute trust assets according to the terms of the trust. Sometimes the terms regarding distribution of trust assets are very specific and give the Trustee no discretion while in other trust agreements a Trustee has a wide degree of discretion with regard to the distribution of trust assets. Finally, because a trust is a separate legal entity, a Trustee is also required to keep detailed trust records and to pay trust taxes every year as well as part of the administration of the trust.
Choosing the Right Trustee
Do not make the mistake many people make of naming a spouse, family member, or close friend as the Trustee of your trust solely on the basis that you trust that individual. Yes, you need to be able to trust the Trustee of your trust considering that fact that he/she will be managing the trust assets; however, being trustworthy should not be the only criteria you use to choose your Trustee. Administering a trust successfully also requires both financial and legal skills and knowledge. Even if your Trustee retains the services of professionals to assist with administering the trust, your Trustee should have at least a rudimentary level knowledge of investing and the law in order to be able to oversee the professionals hired to assist. Ideally, your Trustee will have the skills and experience necessary himself/herself to manage trust assets and invest those assets without needing to retain a professional to do so. The same is true for understanding the legalities of the trust agreement. Ideally, your Trustee can understand the trust terms along with his/her duties under those terms, without having to rely entirely on an outside professional to explain everything. These are the things you want to keep in mind when you are choosing the Trustee of your trust.
For more information, please download our FREE estate planning worksheet. If you have questions or concerns relating to trust administration, contact the experienced estate planning attorneys at the Law Offices of Kobrick & Moccia by calling 800-295-1917 to schedule your appointment.