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Home » Trust Administration Steps

Trust Administration Steps

December 20, 2022Trust in Indianapolis

When a trust is created, the trust creator must appoint a Trustee to administer the trust. If you recently learned that you were appointed to be the Trustee of a trust, and you have never before administered a trust, you may be a bit intimidated at the prospect of doing so. The Indianapolis trust administration attorneys at Frank & Kraft offer a trust administration checklist for the new Trustee.

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

Now two trust agreements are identical, meaning the administration of no two trusts will be exactly the same. Nevertheless, there are enough common steps a Trustee should take when administering a trust to create a checklist.       

  1. 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.
  2. Review the trust agreement. Take your time and read through the trust agreement several times. Unless you are familiar with the legal jargon, you may not understand everything right away – but you need to understand it all eventually.
  3. 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.
  4. Transfer assets into the trust.  Often, after the death of a Settlor, assets must be transferred into the trust from the Settlor’s estate. This should be done as soon after the Settlor’s death as possible.
  5. 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.
  6. Establish a bank account.  A trust is a separate legal entity for tax purposes. A trust also needs its own a bank account to pay trust expenses.
  7. Communicate with beneficiaries. Let the trust beneficiaries know that you are the Trustee and that you will be handling the trust administration. You have an ongoing duty to communicate with the beneficiaries and keep them updated on the trust business.
  8. 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 Indianapolis Trust Administration Attorneys

For more information, please join us for an upcoming FREE seminar. If you have additional questions or concerns about trust administration, contact the experienced Indianapolis trust administration attorneys at Frank & Kraft by calling (317) 684-1100 to schedule an appointment.

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Paul A. Kraft, Estate Planning Attorney
Paul A. Kraft, Estate Planning Attorney
Paul Kraft is Co-Founder and the senior Principal of Frank & Kraft, one of the leading law firms in Indiana in the area of estate planning as well as business and tax planning.

Mr. Kraft assists clients primarily in the areas of estate planning and administration, Medicaid planning, federal and state taxation, real estate and corporate law, bringing the added perspective of an accounting background to his work.
Paul A. Kraft, Estate Planning Attorney
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To ensure that your estate doesn’t lose assets to federal gift and estate taxes you may need to include tax avoidance strategies in your estate plan. One estate planning tool that can provide tax avoidance benefits is a Grantor Retained Income Trust, or GRIT. Always consult with your estate planning attorney before deciding what tools to incorporate into your estate plan. In the meantime, however, the Indianapolis trust attorneys at Frank & Kraft explain how a Grantor Retained Income Trust works and why you might want to include one in your estate plan. What Is a GRIT? A GRIT is a specialized type of irrevocable trust that allows the Grantor (creator of the trust, also referred to as the “Settlor”) to transfer assets into the trust while retaining the right to receive all of the net income from the trust assets for a fixed term of years, referred to as the “initial term.” Income from the trust is distributed to the Grantor at least annually during the initial term. At the end of the initial term, the remaining principal is either distributed to the trust beneficiaries or remains in the trust for the benefit of those beneficiaries. The primary benefit of a GRIT is that if (this condition is important) the Grantor survives the initial term, the value of the principal held in the GRIT is excluded from the Grantor’s estate for federal gift and estate tax purposes. How Does a GRIT Help with Tax Avoidance? The tax avoidance benefit of a GRIT is found in how the value of the trust principal is determined because those assets are valued at a discount. The value of the discount depends on the length of the initial term of the GRIT, and the applicable federal rate in effect at the time the GRIT is established. The transfer of assets to a GRIT constitutes a gift equal to the total value of the assets transferred to the GRIT, less the present value of the retained income interest held by the Grantor for the initial term. If the Grantor survives the initial term, the assets comprising the GRIT will pass to the designated remainder beneficiaries at a reduced gift tax value. GRIT Beneficiaries Section 2702 of the Internal Revenue Code determines who you cannot name as a beneficiary in a GRIT. Excluded beneficiaries include your spouse, your ancestors or the ancestors of your spouse, any lineal descendant of yours or your spouse, any sibling of yours or your spouse, or the spouses of any of the foregoing persons. You can name lineal descendants of siblings, (nieces and nephews) relatives even more distant than nieces and nephews, or friends of yours or your spouse as beneficiaries of a GRIT. How a GRIT Works in Practice Imagine that you establish a 15-year GRIT and transfer $100,000 of assets into the trust and that the applicable federal rate is five percent. As the Grantor, you will receive the income from the GRIT during the initial term. The present value of the retained income interest is $66,007, making the value of the gift $33,993. If you survive until the end of the initial term, however, the remainder beneficiaries will receive $100,0000 plus all capital growth. Your estate, however, will only need to acknowledge a lifetime gift in the amount of $33,993 (the applicable value of the gift at the time it was made). Disadvantages of Using a GRIT Just like most tax savings tools and strategies, there are some disadvantages to relying on a GRIT. First, it is an irrevocable trust, meaning if your personal circumstances change, you cannot make corresponding changes to the trust. Second, if you do not survive the initial term the advantages gained by creating a GRIT do not apply. Contact the Indianapolis Trust Attorneys For more information, please download our FREE estate planning worksheet. If you have additional questions or concerns about establishing a Grantor Retained Income Trust, contact the experienced Indianapolis trust attorneys at Frank & Kraft by calling (317) 684-1100 to schedule an appointment.
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