Compliments of Our Law Firm,
By: The American Academy of Estate Planning Attorneys
If a family member or friend has chosen you to serve as Trustee of their Living Trust, you’ve been given a great honor. It means they believe you are honest and responsible and they have a great deal of faith in your abilities and your personal integrity. It also means that you have an important, and sometimes complicated, job to do.
While no two Trusts are exactly alike, all Trustees share the same basic obligations. A Trustee is charged with the responsibility of managing the assets that belong to the Trust. In doing this, the Trustee is required to follow the terms of the Trust document.
Current vs. Successor Trustee
Your obligations might begin immediately, or they may not start until some point in the future. This depends on whether the person creating the Trust – called the Trustor – has named you the current Trustee or the successor Trustee.
Let’s imagine your father is the Trustor. It’s common for someone creating a Trust to serve as his own Trustee as long as he is alive and well, and your dad is no exception. He has chosen you as his successor Trustee, so you don’t have any obligations until your father dies, or until he suffers an illness or injury that renders him incapable of managing the Trust on his own.
If your dad became mentally or physically incapable of serving as his own Trustee, you would step in and follow the instructions in the Trust document for having your father removed as Trustee. Normally, this means getting a physician’s statement that your father is no longer able to manage his own affairs. You would then follow the terms of the Trust to manage Trust assets for your dad’s benefit. If your father later regained the ability to serve as his own Trustee, he would have the option to once again take over that role.
If your father died, you would need his death certificate to take over the role of Trustee.
As Trustee, you have the responsibility to follow the terms of the Trust document and manage the Trust assets in a prudent manner. This not only means preserving the property your father transferred into the Trust, it also means investing the Trust assets responsibly. Each state has its own standards that define what it means to invest Trust assets prudently.
In addition to following the terms of the Trust, you as Trustee have a fiduciary duty to the beneficiaries of the Trust. This means you must manage the Trust in the best interests of all the beneficiaries, rather than using the assets in a way that solely benefits you.
You’ll also need to keep up with administrative duties, such as keeping an inventory of Trust assets, keeping accurate records of transactions you make on behalf of the Trust, and filing income tax returns and, possibly, estate tax returns for the Trust.
Not only are you responsible for the management of the Trust, you are also responsible for distributing the Trust assets in accordance with the terms of the Trust. Trusts vary widely when it comes to the discretion Trustees are given in making distributions. For instance, your father’s Trust document might name you and your two siblings as the sole beneficiaries of the Trust, and instruct that the Trust assets be sold and the money divided evenly among the three of you.
On the other hand, the document might give you the discretion to distribute Trust funds to provide for the “health, education, maintenance, and support” of your siblings. This would leave you to decide how much of a distribution – and how often – is reasonable given your siblings’ circumstances.
Just as no two Trusts are alike, no two Trustees have exactly the same responsibilities and challenges. An experienced estate planning attorney can help you understand your duties so that you can fulfill your role with confidence.