Were you recently informed that a family member or close friend named you as the Trustee of a trust they created? If so, is this the first time you have served as a Trustee? If the answer to both questions is “yes,” you are likely feeling a bit intimidated at the prospect of administering a trust for the first time. Keep in mind that your friend or family member clearly had a considerable amount of trust and faith in your ability or he/she would not have appointed you a the Trustee of the trust. The best way to ensure that you do not make a costly mistake in your new position is to retain the services of an experienced attorney to help you throughout your tenure as Trustee. For now, the Grand Forks Trust Administration attorneys at German Law offer the following tips for the first-time Trustee.
Trust Basics for a First-Time 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 Trustor’s 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.
Contact Us About Trust Administration
If you have additional questions or concerns regarding trust administration, contact the experienced trust administration attorneys at German Law by calling 701-738-0060 to schedule an appointment.