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Home » Trust Administration Tips for the New Trustee

Trust Administration Tips for the New Trustee

November 17, 2020Trust in Indianapolis

Indianapolis trust administration attorneys

If you were recently informed that you are the Trustee of a trust, and this is the first time you have served as a Trustee, you may not know where to begin or exactly what your duties and responsibilities as a Trustee will be. Unfortunately, people often appoint a spouse, friend, or family member as the Trustee of their trust without discussing the appointment with the prospective Trustee ahead of time. Consequently, it is not unusual for a new Trustee to feel a bit overwhelmed. Specific questions should be directed to an experienced trust administration attorney in person; however, to get you started, the Indianapolis trust administration attorneys at Frank & Kraft provide tips for the new Trustee.

What Is a Trust?

A trust is a relationship whereby property is held by one party for the benefit of another. A trust is created by a Settlor (also referred to as a Maker or Grantor), who transfers property to a Trustee. The Trustee holds that property for the trust’s beneficiaries. Most people enter into trust agreements on a daily basis without realizing it. For example, imagine that you ask your sister Beth to hold onto some family heirlooms you have and to then give them to your niece and nephew when they reach age 25. You have created a trust wherein you are the Settlor, Beth is the Trustee, and your niece and nephew are the beneficiaries of the trust. In addition, the family heirlooms are the trust assets and your directions to hold onto them until the beneficiaries reach age 25 the trust terms. 

What Does the Do?

The Trustee of a trust serves two primary functions – managing trust assets and administering the trust terms. The duties and responsibilities of a Trustee, however, are numerous and varied and include things such as:

  • Communicating with beneficiaries
  • Settling disputes among beneficiaries
  • Keeping trust records
  • Preparing trust taxes
  • Investing trust assets
  • Distributing trust assets
  • Abiding by trust terms

Trust Administration Tips

If you find yourself as the Trustee of a trust for the first time, the responsibilities you have likely feel a bit daunting. The following tips may help you with your trust administration duties:

  • Consult with an experienced estate planning attorney immediately.  Ideally, the Trustee of a trust will have a legal background. If you do not, the most important thing you can do as a new Trustee is to consult with an experienced estate planning attorney. Most Trustee’s retain an attorney to assist them with their duties to ensure that those duties are carried out without making costly mistakes.
  • Read the trust agreement carefully. The terms of the trust agreement govern the trust and must be followed exactly unless a term is illegal or unconscionable.
  • Organize your duties and responsibilities.  The job of Trustee involves a wide variety of very different tasks and responsibilities. To keep track of all of them, and to help with your recordkeeping duties, set up an organizational system right away.
  • Create a system for recordkeeping. This is extremely important and will help ensure that you are never held personally liable in your position as Trustee. Make sure all important trust business is reduced to writing and keep copies of everything in some type of organized filing system.
  • Consult with a financial advisor. Most Trustees are required to invest trust assets. When investing trust assets, you are bound by the “prudent investor” rule. If you are unfamiliar with this rule and/or have no financial planning experience, it is in your best interest to consult with a financial advisor early on in your job as 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 administering a trust, contact the experienced Indianapolis trust administration attorneys at Frank & Kraft by calling (317) 684-1100 to schedule an appointment.

  • Author
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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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Trust Administration Steps
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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