A trust is one of the most common additions to a well thought out, and comprehensive, estate plan. One reason why trusts have become so popular is because a trust can achieve a wide range of estate planning goals and objectives and can be tailored to suit the needs of the individual creating the trust. Ideally, when a trust is created, the individual who creates the trust discusses the role of Trustee with a candidate before actually appointing the person to the position. All too often, however, that doesn’t happen. If you recently found out that you are the Trustee of a trust, and you have never been appointed to that position before, you may feel a bit intimidated at the prospect of administering the trust. With that in mind, the trust administration attorneys at the Law Offices of Kobrick & Moccia put together some frequently asked questions and answers relating to trust administration that may help you. If you have specific questions relating to the administration of the trust, feel free to contact out office to schedule a consultation.
1. What are the elements of a trust?
Over the last century or so, trusts have evolved to the point where there is a specialized trust to fit almost any estate planning goal or need. All trusts, however, require the same five elements for creation, including:
- Settlor – the person who creates the trust. A Settlor may also be referred to as the Grantor or Maker of the trust.
- Trustee – an individual or entity that administers the trust terms as well as manages and invests the trust assets.
- Beneficiary – a beneficiary is the person, entity, or even family pet that receives the benefit of the trust assets.
- Terms – created by the Settlor and may be anything that is not illegal or unconscionable.
- Funding – almost anything of value can be used to a fund a trust, including cash, securities, and real property.
2. What are the different kinds of trusts?
All trusts fall into one of two main categories – testamentary or living trust. A testamentary trust is one that does not become active until the death of the Settlor. Typically, a testamentary trust is triggered by a provision in the Settlor’s Last Will and Testament. A living trust, formally known as a “inter-vivos” trust, activates as soon as all of the formalities of creation are complete and the trust is funded. Living trusts can be further divided into revocable and irrevocable living trusts. As the names imply, a revocable living trust can be revoked or terminated by the Settlor at any time and for any reason whereas an irrevocable living trust cannot be revoked or terminated by the Settlor after the trust becomes active. Beyond those basics, there are a number of specialized trusts that accomplish very narrow estate planning goals, such as incapacity planning or special needs planning.
3. How Is a Trustee Chosen?
The Settlor of a trust chooses the Trustee. This often results in a common mistake – appointing a friend, family member, or spouse as the Trustee of a trust when that person is not really qualified to be the Trustee. Understandably, people often think that appointing someone they trust to be the Trustee of their trust makes sense. While you certainly should trust the person you appoint as your Trustee, the individual should really have a legal background as well as some experience in finance given the types of duties the Trustee will have when administering the trust. In fact, for larger, more complex, trusts, it is often best to appoint a professional Trustee.
4. What does it mean to “administer” a trust?
The terms of a trust, which are created by the Settlor, are reduced to writing in the form of a trust agreement. Once the trust is active, someone must make sure those terms are followed and make sure the trust assets are safe. All of that is part of trust administration. Administering a trust can be a fairly easy job if the trust is simple and the trust assets minimal; however, a moderate to large trust, or one with very complex trust terms needs more expertise.
5. What are the duties and responsibilities of a Trustee?
The duties and responsibilities of a Trustee can be wide ranging and will differ from one trust to another; however, there are some common duties and responsibilities most Trustees have, including:
- Following all trust terms unless they are illegal or unconscionable.
- Communicating with beneficiaries.
- Investing trust assets using the “prudent investor” standard.
- Managing trust assets.
- Distributing trust assets.
- Keeping trust records.
- Preparing and filing trust taxes.
- Defending the trust against legal challenges.
6. When does trust administration end?
Your job as the Trustee of the trust ends when the trust terminates or is revoked, or when you resign as the Trustee. The trust will terminate on a date specified by the Settlor or upon the occurrence of a specific event as specified by the Settlor. If the trust is a revocable trust, the trust may terminate at any time if the Settlor decides to terminate it as well. It may also be possible for the beneficiaries and/or Trustee to terminate a trust if everyone agrees to do so. Finally, a court always has the legal authority to terminate a trust; however, as a general rule, a court will only terminate an irrevocable trust upon the showing of good cause, such as the trust purpose has become impossible.
If you have specific questions regarding trust administration, or your role as the Trustee of a trust, contact an experienced estate planning attorney at the Law Offices of Kobrick & Moccia by calling 800-295-1917 to schedule your appointment.