Although your initial estate plan may be very simplistic, consisting of not much more than a Last Will and Testament, as both your estate and your family grow, your estate plan will likely become more sophisticated as well to accommodate your increasing needs and goals. Among the most popular additions to a growing estate plan is a living trust. If you choose to incorporate a living trust into your plan, you will need to appoint a Trustee for your trust. To help ensure that you choose wisely, a Minor living trust lawyer explains the role of Trustee.
What You Need to Know about Trusts
The overall purpose of a trust is to hold assets of the Settlor (the person who created the trust) to be used for the benefit of a third party (the beneficiary) at some point in the future. The Settlor (also referred to as a “Grantor” or “Trustor”) transfers assets into the trust that is then administered by a Trustee, appointed by the Settlor. All trusts must have at least one beneficiary but may have many. Trusts fall into one of two categories — testamentary or living trusts with the former not activating until the death of the Settlor and the latter activating during the lifetime of the Settlor. A living trust can also be either revocable or irrevocable.
What Does a Trustee Do?
The two primary functions of the Trustee are to manage and invest trust assets and to administer the trust using the trust terms created by the Settlor. Some of the specific duties and responsibilities of the Trustee include:
- Managing and protecting trust assets
- Abiding by the trust terms unless they are impossible, illegal, or unconscionable
- Investing trust funds using the “Prudent Investor Standard”
- Monitoring trust investments
- Communicating with trust beneficiaries
- Resolving conflicts among beneficiaries
- Making discretionary decisions
- Distributing trust funds to beneficiaries
- Approving or denying distributions if given discretionary authority
- Keeping detailed trust records
- Preparing and paying trust taxes
Who Should Be Your Trustee?
Deciding who to appoint as the Trustee of your trust should depend on a variety of factors, starting with the type of trust you create and the trust purpose. For example, if the primary reason for your trust is incapacity planning you will appoint yourself as the Trustee and appoint the person you wish to take over control of your assets in the event of your incapacity as the Successor Trustee. On the other hand, if asset protection is your primary goal, you cannot be the Trustee of the trust, requiring you to decide who to appoint as your Trustee. Ideally, your Trustee should be able to:
- Always act in the best interest of the beneficiaries. A Trustee has a fiduciary duty to do what is best for the beneficiaries of the trust at all times.
- Understand and follow the terms of the trust. Unless a trust term is illegal, impossible, or unconscionable a Trustee must follow the terms as written by the Settlor.
- Avoid conflicts of interest. If the Trustee has a preexisting relationship with a beneficiary it can be easy for a conflict of interest to arise.
- Invest cautiously and carefully. A Trustee is required to use the “prudent investor standard” when investing trust assets. This requires investing with caution, avoiding risk at all times and always focusing on protecting the principal first and growth second.
- Protect the trust assets. A Trustee should make sure investments are earning money, real property is kept up and properly maintained, and disbursements are only made from the trust when the trust terms dictate.
- Keep good records. The Trustee must keep excellent records of all trust business. And maintain communication with the beneficiaries.
- Seek professional advice. The duties and responsibilities of a Trustee during the administration of a trust typically require at least a rudimentary knowledge of both legal and financial concepts. To ensure that costly mistakes do not occur, a Trustee should seek guidance from a professional before making important decisions unless the Trustee is a professional himself/herself.
Contact a Living Trust Lawyer
Please join us for an upcoming FREE seminar. If you have additional questions or concerns about the role of Trustee, contact an experienced living trust lawyer at German Law by calling 701-738-0060 to schedule an appointment.