If you have been appointed as the Trustee of a trust you have been given an important job. Your performance as the Trustee will greatly impact the ultimate success, or failure, of the trust. How you approach trust administration as the Trustee will determine, to a great extent, whether the trust benefits the beneficiaries or not. If you have never served as a Trustee before, it is definitely in your best interest to retain the services of an experienced estate planning attorney as well as a financial adviser to assist you in the performance of your duties and responsibilities. It may also help, however, to know what will be expected of you, as the Trustee, in regard to the trust administration.
First and foremost, a Trustee owes a fiduciary duty to the trust and the trust beneficiaries. A fiduciary duty means that a Trustee must use the utmost care when managing trust assets and making investments with those assets. Risky investments are to be avoided and the “prudent investor” standard must be used at all times. A Trustee should take into account what is in the best interest not only of current beneficiaries but also of and future beneficiaries of the trust.
A trustee has a duty to communicate with beneficiaries about trust business as well as having a duty of absolute loyalty to beneficiaries of the trust. This means you must put the interests of the beneficiaries first in all dealings and must administer the trust solely or the benefit of the beneficiaries. This can create a conflict if you are also a beneficiary of the trust because the Trustee’s duty of loyalty is to all beneficiaries equally.
Managing Trust Assets
A Trustee has a duty to secure, safeguard and protect all trust assets. This may include keeping extensive financial records for intangible assets or may require actually maintaining physical assets owned by the trust. If the trust has significant investment assets, it is strongly advisable that you hire an experienced financial advisor to assist you in the proper management of those assets.
Abiding by Trust Terms
The Settlor (creator) of a trust creates the trust terms that dictate how the trust is managed, the trust assets invested, and how the trust assets are distributed. As long as the terms are not illegal or unconscionable, the Settlor may create any terms he/she wishes. As the Trustee of the trust, trust administration requires you to abide by those terms exactly as they are written, unless you have discretion within the terms of the trust to change or modify terms. The Settlor of the trust decides how much, if any, discretion a Trustee will have with regard to the trust terms. Among other things, the trust terms will typically govern the distribution of trust assets as well as provide you with guidance with regard to investing and managing those assets.
Some trusts make it relatively simple for the Trustee to make distributions because the Trustee has no discretion. If, however, you have discretion with regard to making distributions it becomes much more complicated. Although you owe a duty to the beneficiaries, your first obligation is to the trust which requires you to ensure that trust assets are not squandered when possible.
As the Trustee, you are responsible for keeping records of all trust business and providing an annual accounting of that business. Detailed records must be kept of all transactions conducted in the name of the trust, including all income earned by the trust, distributions made by the trust, and expenses incurred by the trust.
Because a trust is a separate legal entity, the trust is also typically a taxable entity. Therefore, trust administration also makes you responsible for preparing, filing, and paying all tax obligations owed by the trust.
For additional information, please join us for one of our upcoming free seminars. If you have additional questions about trust administration in North Dakota, contact the experienced estate planning attorneys at German Law by calling 701-738-0060 to schedule an appointment.