A trust is among the most common additions to a comprehensive estate plan. Every trust must have a Trustee, appointed by the creator of the trust, who is responsible for administering the trust. Administering a trust is often a complex and time-consuming job – something that many first-time Trustee’s don’t find out until after accepting the appointment. In fact, given the financial and legal skills frequently required to successfully administer a trust, it is often wise to appoint a professional Trustee instead of appointing a spouse, family member, or close friend.
What Is a Trust?
You probably have some idea what a trust is and how one operates already; however, since you will be administering one it cannot hurt to learn the 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 (also referred to as a Maker, Trustor, or Grantor), who transfers property to a Trustee. The Trustee holds that property for the trust’s beneficiaries.
How Does a Trustee Administer a Trust?
In broad terms, the job of a Trustee is to protect the trust assets and to administer the trust using the terms created by the Settler. The specific duties and responsibilities a Trustee has during the administration of a trust are numerous and often varied and may include:
- Managing and protecting assets held by the trust. Trust assets can include almost anything of value. The Trustee is responsible for any and all assets held by the trust. Consequently, this could mean something as simple as reconciling bank statements or something as complex as maintaining real property.
- Using the trust terms to administer the trust. The Settler has great latitude when creating the trust terms. Unless the terms of a trust are impossible, illegal, or unconscionable, the Trustee is required by law to use the terms, exactly as written by the Settlor, to administer the trust.
- Investing trust funds using the “Prudent Investor Standard.” The Trustee of a trust is responsible for managing someone else’s assets, meaning they are in a fiduciary role. Investments, therefore, should never be risky. One of the most important rules for a Trustee when administering a trust is that guarding the principal should always be the primary focus with a return on investments secondary.
- Keeping trust beneficiaries informed. The Trustee of a trust has an obligation to keep the beneficiaries of the trust informed of all trust business and to correspond with the beneficiaries when necessary.
- Mediating conflicts among beneficiaries. Conflicts and disputes among beneficiaries can occur during the administration of a trust. A Trustee must remain neutral and attempt to resolve conflicts before they escalate and/or before they result in litigation. If the trust includes future beneficiaries as well, the Trustee must also consider their best interests when resolving disputes.
- Making discretionary decisions. If the Settlor gave the Trustee power to make decisions regarding investments and/or disbursements, part of administering the trust will include making those discretionary decisions.
- Distributing trust funds to beneficiaries. All trusts distribute the trust assets at some point, to someone. The trust terms establish how and when this is done by the Trustee.
- Keeping detailed trust records. Ultimately, accountability for the success, or failure, of the trust will lie predominantly with the person (or entity) that administers the trust – in other words with the Trustee. With that in mind, the Trustee needs to keep detailed records of everything involved in administering the trust.
- Preparing and paying trust taxes. Because a trust is a separate legal entity, a trust is taxed which means the trust must file a tax return every year. Completing the tax return and ensuring that any taxes due is part of the administration of the trust by the Trustee.
Contact Indianapolis Trust Administration Attorneys
For more information, please download our FREE estate planning worksheet. If you have questions or concerns related to the duties and responsibilities involved in administering a trust, contact the experienced Indianapolis trust administration attorneys at Frank & Kraft by calling (317) 684-1100 to schedule an appointment.
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.