Although once used almost exclusively by wealthy families, trusts are now commonly found in the average person’s estate plan. If you are contemplating the addition of a trust to your estate plan, it is important that you choose the right Trustee to administer that trust. Understanding the trust administration process a little bit better may help you choose the right Trustee. Toward that end, an Indianapolis trust administration attorney at Frank & Kraft explains what is involved in administering a trust.
Choose Your Trustee Wisely
One of the most common mistakes a Settlor (the creator of a trust) can make is to appoint the wrong person as Trustee. This often happens when a Settlor appoints someone close to them, such as a spouse, close friend, or relative as the Trustee based solely on their relationship to the individual instead of on the individual’s ability to perform the job of Trustee well. Ultimately, this can lead to the failure of the trust if the Trustee ends up in over his/her head and doesn’t seek the help and guidance of a professional in time. To avoid making this common mistake, make sure you have a firm understanding of what is expected of a Trustee and then take the time to choose the right person for the job.
What Is Involved in Trust Administration?
To understand the importance of choosing the right Trustee, you need to understand what is involved in administering a trust. Trust administration involves a wide range of duties and responsibilities, including:
- Following
trust terms — the Trustee
of a trust is required to abide by the terms of the trust, as created by the
Settlor, unless a term is illegal, impossible, or unconscionable. This requires
the Trustee to understand the terms and to have the ability to follow a term
even if the Trustee doesn’t personally agree with the term. - Managing
trust assets – this could
require something as simple as monitoring and filing bank statements or
something as complex and time-consuming as handling the maintenance and upkeep
of real property or a business. - Investing
trust assets – ideally, the
assets held in a trust are income producing assets. This, however, requires the
Trustee to invest those assets wisely. A Trustee must always use the “prudent
investor standard” which dictates conservative investments wherein the trust principal
is never at risk. Moreover, because a
Trustee is in a fiduciary role, he/she must be more careful with trust assets
than the Trustee would be with his/her own assets. - Keeping
detailed records – because a
Trustee is managing assets intended to benefit a third party, and receives a
fee for that management, very detailed records should always be kept. - Communicating
with beneficiaries – a Trustee is
responsible for keeping beneficiaries informed of all trust business in a
timely manner. - Resolving
conflicts – if a conflict arises. the
Trustee must defend the trust in any litigation. If the conflict is among
beneficiaries, a Trustee should act as a mediator try and resolve the conflict. - Paying
taxes – a trust is a separate
legal entity, meaning taxes must be prepared and paid each year by the Trustee.
Even if a Trustee hires a CPA to prepare the trust taxes each year, the Trustee
should have sufficient financial skills to understand the tax return and any
obligation the trust has for paying gift and estate taxes. - Distributing
assets – the Trustee is
responsible for distributing trust assets to the designated beneficiaries
according to the terms of the trust. - Making
discretionary decisions –
typically, a Trustee has some degree of discretion. Some Settlors give a
Trustee only a token amount of discretion in case of an emergency while other
provide a Trustee with the discretion to make major trust decisions.
Contact an Indianapolis Trust Administration Attorney
For more information, please download our FREE estate planning worksheet. If you have additional questions or concerns about administering a trust, contact an experienced Indianapolis trust administration attorney at Frank & Kraft by calling (317) 684-1100 to schedule an appointment.
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