One of the most important decisions a Trustor (the creator) of a trust makes is who to appoint as the Trustee of the trust. Ideally, the Trustor discusses the appointment with the proposed Trustee before making the final decision. All too often, however, a Trustor appoints a Trustee without the Trustee knowing about it. If you recently found out that you were appointed to be the Trustee of a trust, and you have never served as a Trustee before, you may be feeling a little intimidated at the prospect of administering a trust. Most first-time Trustees work closely with an experienced attorney to ensure they do not make any costly mistakes. To get you started, however, a trust administration attorney has put together some tips for the first-time Trustee.
Trust Basics for the Beginner Trustee
Before discussing your role as the Trustee of a trust, it is imperative that you learn some trust basics. A trust is a relationship whereby property is held by one party for the benefit of another. A trust is created by a Trustor, also called a Maker or a Grantor, who transfers property to a Trustee. The Trustee holds that property for the trust beneficiaries. The beneficiary of a trust can be an individual, an entity (such as a charity or political organization), or even the family pet. A trust must have at least one beneficiary but may have an unlimited number of beneficiaries. A trust may have both current and future beneficiaries.
All trusts are broadly divided into two categories – testamentary and living (inter vivos) trusts. Testamentary trusts are typically activated by a provision in the Trustor’s Last Will and Testament and, therefore, do not become active during the lifetime of the Trustor. If you are the Trustee of a testamentary trust, it means that the Trustor is no longer around to confer with regarding his/her intentions. All you have to go on are the terms of the trust itself. Conversely, a living trust, activates during the Trustor’s lifetime. Living trusts can be further sub-divided into revocable and irrevocable living trusts. As the Trustee of an irrevocable living trust you will not need to worry about the Trustor making any changes to the trust because he/she may not do so once the trust is active. If the trust is a revocable living trust, however, the Trustor may modify or terminate the trust at any time.
Tips for the New Trustee
- Make sure you understand the trust agreement. Read through the trust agreement. Then read it again – and then read it again. A trust agreement can be relatively simple; however, most are complex documents full of legal concepts and jargon that probably sounds foreign to you unless you have a legal background. An accurate and complete understanding of the agreement, however, is crucial to performing your job as Trustee without making any serious mistakes.
- Evaluate, inventory, and secure the trust assets. A trust can be funded using almost anything of value, including cash, securities, and/or real property. If the trust in question owns numerous assets, you need to have an accurate accounting of those assets and their value from day one.
- Create an investment plan. The trust agreement should provide guidance with regard to investing. Some Settlors want the Trustee to be aggressive with trust assets while others are very risk averse. First, you need to figure out what the Trustor’s position is on investing. Then you need to create a short and long-term investment plan.
- Seek, and make use of, professional assistance. Unless you happen to have a background, or be educated, in the legal or financial field, you should consult with the appropriate advisors. Most Trustees retain the services of an estate planning attorney to help administer the trust and a financial advisor to help create an investment plan.
- Keep detailed records. You will be required to communicate with beneficiaries on a regular basis and provide them with updates about trust business. In order to fulfill that obligation, you need to keep detailed records of all trust related business, including, but not limited to, investments, trust expenses, disbursements, and taxes.
If you have additional question or concerns regarding trust administration in either North Dakota or Minnesota, contact the experienced estate planning attorneys at German Law by calling 701-738-0060 to schedule an appointment.