Because of the numerous and varied estate planning goals a trust can help achieve, it is very common to see at least one trust agreement in the average estate plan. Once a trust becomes active, the trust must be administered by the Trustee. Trust administration is frequently more complex and complicated than people realize. Failing to understand what is involved in trust administration can lead to appointing the wrong person as your Trustee which is why it is imperative to learn the basics of trust administration before incorporating a trust into your overall estate plan.
Understanding 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, who transfers property to a Trustee. The Trustee holds that property for the trust’s beneficiaries. A trust is created using a trust agreement. The trust agreement includes terms, created by the Settlor, that dictate how the trust is to be administered. A Settlor may include almost any terms he/she wishes and the Trustee must abide by those terms unless a term is illegal or unconscionable. All trusts fall into one of two broad categories – testamentary or living trusts. A testamentary trust does not activate until after the death of the Settlor, usually through a provision in the Settlor’s Will. A living trust, on the other hand, will activate during the Settlor’s lifetime once all elements of creation are in place. A living trust can be further divided into revocable and irrevocable living trusts whereas a testamentary trust is always irrevocable.
Trust Administration Basics
Because a trust can be a living trust or a testamentary trust, a trust can also be administered while the Settlor is still alive or after the death of the Settlor. If the Settlor is no longer alive, that means the Settlor’s estate must go through the probate process. As a general rule, assets owned by a decedent must pass through probate before they can be distributed to the intended beneficiaries and/or heirs of the estate. Assets held in a trust, however, bypass probate and are distributed according to the terms of the trust without any judicial oversight. Instead, the Trustee is responsible for distributing the trust assets using the guidelines found in the trust agreement. Before that can happen though, assets may need to be marshalled and transferred into the Trustee’s name.
Duties and Responsibilities of the Trustee during Trust Administration
Although there are usually some additional duties and responsibilities a Trustee must undertake when administering a testamentary trust, there are numerous duties and responsibilities involved in the administration of any trust. Among the most common reasons for a trust to fail is a Trustee who is ill-prepared for the wide range of complex duties and responsibilities required of a Trustee. Unfortunately, successfully administering a trust requires much more than simply good intentions. Some of the most common duties and responsibilities of a Trustee include:
- 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
Properly administering a trust takes time and skill. Appointing the right person to administer your trust is the key to creating a successful trust. For this reason alone it is always wise to consult with your estate planning attorney about your choice of Trustee. You may even wish to consider appointing a professional Trustee to ensure that your trust is administered successfully.
Contact a Trust Administration Attorney
For more information, please download our FREE estate planning worksheet. If you are considering the addition of a trust into your estate plan, contact the New York trust administration attorneys at the Law Offices of Kobrick & Moccia by calling 800-295-1917 to schedule your appointment.