Trusts have become a central component of modern estate planning because they offer flexibility, privacy, and control over how assets are managed and distributed. Creating a trust, however, is only the first step. The effectiveness of that trust ultimately depends on the person or institution selected to serve as Trustee. In Indiana, a Trustee assumes significant legal authority, but that authority comes with equally significant fiduciary obligations. Serving as Trustee is not merely an honorary role, but a legal responsibility that requires organization, careful judgment, consistent communication, and strict compliance with the terms of the trust. No two trust agreements are identical, which means no two trust administrations will unfold in exactly the same way. Nevertheless, most Trustees must complete a series of common steps to properly begin and carry out trust administration. To help you understand what the role involves, the Indiana estate planning attorneys at Frank & Kraft have put together the following Trustee duties checklist for trust administration in Indiana. If you have additional questions or concerns, please feel free to contact our office to schedule an appointment.
What Is the Role of a Trustee?
A Trustee is the individual or entity appointed to manage trust assets for the benefit of the beneficiaries. The person who creates the trust is commonly referred to as the Settlor, Grantor, or Trustor and they also establish the trust terms, transfer assets into the trust, and appoint a Trustee to administer the trust according to the instructions contained in the trust agreement.
A Trustee may be a family member, trusted friend, professional fiduciary, bank, trust company, or other qualified entity. Some trusts also appoint Co-Trustees, requiring two or more fiduciaries to act together. Regardless of who serves, the Trustee must understand that they are acting in a fiduciary capacity, meaning that they must place the interests of the trust and beneficiaries ahead of personal interests while administering the trust with care, loyalty, and impartiality.
In practical terms, a Trustee becomes responsible for safeguarding trust property, interpreting the trust agreement, communicating with beneficiaries, managing investments, paying expenses, filing tax returns, making distributions, and maintaining accurate records. Because mistakes can result in personal liability, Trustees should approach the role carefully from the outset.
Step One: Locate and Review the Trust Agreement
The first duty of a Trustee is to locate and thoroughly review the trust agreement. The trust agreement is the governing document that establishes the Trustee’s authority, identifies the beneficiaries, explains how assets should be managed, and directs when distributions should be made. Even if the Trustee believes they understand the Settlor’s wishes, those wishes must be carried out according to the written terms of the trust. When reviewing the trust agreement, the Trustee should pay close attention to several key provisions, including the identity of current and remainder beneficiaries, distribution standards, successor Trustee provisions, investment authority, compensation language, accounting requirements, and any restrictions on the sale or transfer of trust property. Because trust agreements often contain legal terminology that may be unfamiliar, it is generally advisable to review the document with an experienced Indiana trust administration attorney before taking significant action.
Step Two: Gather Related Estate Planning Documents
If the Settlor has recently passed away, the Trustee should gather all related estate planning and financial documents. Although the trust agreement is the primary document governing trust administration, other documents may affect how the estate and trust interact. Relevant documents may include the Settlor’s Last Will and Testament, pour-over Will, powers of attorney, healthcare directives, life insurance policies, beneficiary designation forms, deeds, account statements, business agreements, tax returns, and funeral or burial instructions. This step is especially important when some assets were not transferred into the trust during the Settlor’s lifetime. A pour-over Will may direct probate assets into the trust after death, requiring coordination between probate administration and trust administration.
Step Three: Confirm Your Legal Authority to Act
Before taking control of trust assets, the Trustee should confirm that their authority has legally begun. If the Trustee was named as successor Trustee, authority may arise upon the Settlor’s death, incapacity, resignation, or removal of a prior Trustee. The trust agreement should explain what evidence is required to establish the change in Trustee authority. For example, if the Settlor has died, the Trustee may need certified copies of the death certificate. If incapacity triggered succession, the trust may require physician certifications or other documentation.
Step Four: Consult Professional Advisors Early
Trustees frequently benefit from professional guidance at the beginning of administration. At a minimum, a Trustee should consider consulting an Indiana trust administration attorney to review the trust agreement, explain fiduciary duties, and identify legal deadlines or potential risks. A Trustee may also need assistance from accountants, financial advisors, appraisers, insurance professionals, business valuation experts, or real estate professionals, depending on the nature of the trust assets. While professional guidance does not relieve a Trustee of fiduciary responsibility, it can help the Trustee make informed decisions and avoid costly errors.
Step Five: Identify, Secure, and Protect Trust Assets
One of the most important early duties of a Trustee involves identifying and securing all property owned by the trust. Without a complete understanding of what the trust owns, the Trustee cannot properly administer the trust. Trust assets may include bank accounts, brokerage accounts, real estate, business interests, vehicles, valuable personal property, life insurance proceeds payable to the trust, mineral interests, retirement assets payable to the trust, or other property transferred by the Settlor. After identifying the assets, the Trustee should take reasonable steps to secure and protect them. This may involve changing locks on real estate, confirming insurance coverage, safeguarding valuable personal property, notifying financial institutions, protecting digital records, and preventing unauthorized access to accounts or property.
Step Six: Prepare a Trust Inventory
After trust assets have been located and secured, the Trustee should prepare a complete inventory that identifies each asset, and notes where it is located, how it is titled, its approximate value, and whether additional valuation is required. Real estate may require an appraisal or broker price opinion. Business interests may require a business valuation. Valuable personal property, such as jewelry, artwork, farm equipment, firearms, collectibles, or vehicles, may also require appraisal depending on the terms of the trust and the needs of administration.
Step Seven: Establish a Trust Bank Account
A trust should generally have its own bank account for trust income and expenses and the Trustee should always avoid commingling personal funds with trust funds. Commingling creates confusion, undermines accurate accounting, and may expose the Trustee to allegations of mismanagement. A trust bank account may be used to deposit income, receive proceeds from asset sales, pay expenses, make distributions, and maintain organized financial records. If the trust is irrevocable or became irrevocable upon the Settlor’s death, the Trustee may also need to obtain a separate taxpayer identification number for the trust.
Step Eight: Notify and Communicate with Beneficiaries
Beneficiaries are entitled to receive appropriate information regarding the trust, and Trustees are expected to keep qualified beneficiaries reasonably informed about administration. Early communication should generally identify the Trustee, explain that administration has begun, provide appropriate contact information, and outline what beneficiaries can expect as the process moves forward. The Trustee should not make promises regarding distributions before reviewing trust terms, debts, expenses, taxes, and asset liquidity.
Step Nine: Understand Fiduciary Duties
Every Trustee must understand the fiduciary duties imposed by Indiana law and the trust agreement. These duties shape nearly every decision made during trust administration. The most important fiduciary duties include the duty of loyalty, the duty of impartiality, the duty of prudent administration, the duty to follow the trust terms, the duty to account, and the duty to avoid self-dealing.
The duty of loyalty requires the Trustee to act in the best interests of the beneficiaries rather than for personal gain. The duty of impartiality requires fair treatment of multiple beneficiaries, including current and future beneficiaries. Fair treatment does not always mean equal treatment, particularly when the trust agreement authorizes different distribution standards, but it does require careful and unbiased decision-making.
A Trustee who violates fiduciary duties may be personally liable for resulting losses. For that reason, Trustees should document decisions carefully and seek legal guidance when uncertain.
Step Ten: Manage Investments Prudently
Trustees are often responsible for managing investment assets, which begins with a review of the trust agreement to determine whether it contains specific investment instructions or limitations. If the trust does not provide detailed instructions, the Trustee must generally invest and manage assets prudently, considering the trust’s purposes, terms, distribution needs, risk tolerance, and duration. Prudent investment management often requires diversification unless the trust terms or circumstances justify a different approach. Trustees should avoid speculative decisions, personal preferences, or emotional attachment to assets that may not serve the trust’s purposes.
Step Eleven: Pay Valid Expenses and Debts
Trustees may be responsible for paying trust expenses and, in some cases, expenses connected to the Settlor’s final affairs. These expenses may include property taxes, insurance premiums, utilities, professional fees, maintenance costs, accounting expenses, and administrative costs.
Step Twelve: File Tax Returns and Address Tax Obligations
Depending on the circumstances, the Trustee may need to file fiduciary income tax returns, provide tax reporting documents to beneficiaries, coordinate with the Settlor’s final personal income tax return, or address estate tax considerations. Trust taxation can be complicated because income may be taxed to the trust or passed through to beneficiaries depending on distributions and trust structure. Mistakes can result in penalties, interest, and unnecessary depletion of trust assets.
Step Thirteen: Make Distributions According to the Trust
A Trustee must make distributions strictly according to the trust agreement. Some trusts require immediate distributions after the Settlor’s death, while others continue for years or decades. Some trusts provide mandatory distributions, while others give the Trustee discretion. Before making distributions, the Trustee should confirm that all conditions have been satisfied. For example, a trust may require that a beneficiary reach a certain age, complete an educational milestone, or demonstrate a particular need before receiving funds. Discretionary distributions require special care. The Trustee should evaluate requests consistently, document the reasoning behind decisions, and ensure that distributions align with the trust’s purpose and terms.
Contact Us
If you have additional questions, contact an experienced Indianapolis, Indiana trust administration attorney at Frank & Kraft. by calling (317) 684-1100 to schedule your appointment today.
