The legal concept of a trust has been around for a very long time. As a result, there are now numerous types of specialized trusts that can help accomplish a long list of estate planning goals. One thing that all trusts have in common, however, is the need to appoint a Trustee when the trust agreement is created. If you recently learned that you were appointed to be the Trustee of a trust, and this is your first time acting in that capacity, the prospect can be a bit overwhelming. To get you started, a Grand Forks attorney at German Law discusses the duties and responsibilities of a Trustee in North Dakota.
What Is a Trust?
The basic concept of a trust is simple. The person establishing the trust, referred to as the “Grantor,” appoints a Trustee to manage and protect assets that are intended for the benefit of a third party or third parties. Although not written out in a formal trust agreement, you likely enter into trusts all the time without realizing it. For example, imagine that you ask your sister to hold onto a family heirloom until your niece reaches the age of 18 at which time you direct your sister to give the heirloom to your niece. In that scenario, you are the Grantor, your sister is the Trustee, and your niece is the beneficiary of the trust.
Are There Different Types of Trusts?
Trusts are broadly split into two categories: living and testamentary trusts. A living trust is created and administered during the Grantor’s lifetime. The trust can continue after the Grantor’s death but activates while the Grantor is alive. A testamentary trust is created through a provision in the Grantor’s Last Will and Testament and is only administered after the death of the Grantor.
A living trust can be revocable or irrevocable. If the trust is revocable, the Grantor can modify or terminate the trust at any time without needing to provide a reason. If the trust is irrevocable, the Grantor cannot make changes or revoke the trust for any reason. By its nature, a testamentary trust is always irrevocable.
There are a number of specialized trusts that are used to accomplish specific estate planning goals, such as a special needs trust, a Medicaid trust, or a charitable trust.
Appointment of the Trustee
When the Grantor of a trust creates the trust agreement (the legal document that establishes a trust), a Trustee must be appointed. The Grantor may appoint any capable adult to the position. The Trustee may also be a professional, such as an attorney, or an entity, such as a bank. Given the need for financial and legal knowledge during the administration of a trust, it is wise for the Grantor to appoint someone with a financial or legal background; however, the Grantor is under no legal obligation to do so. Finally, the Grantor should discuss the appointment with the prospective Trustee before making the decision final. Once again though, the Grantor is not obligated to do so.
Duties and Responsibilities of a North Dakota Trustee
The overall job of a Trustee is to manage assets held by the trust and administer the trust using the provisions of the trust agreement. Within that broad job description, however, there are numerous specific duties and responsibilities, such as:
- Understanding the trust terms. Read the trust agreement several times and consult with an attorney to be certain you understand the terms. It is your responsibility to abide by those terms so you must have a clear understanding of them.
- Managing and safeguarding trust assets. A trust can be funded using almost anything, including cash, real property, collectibles, securities, and life insurance policies. It is the Trustee’s job to safeguard all trust assets and manage those assets.
- Follow the trust terms. The trust agreement should clearly indicate the trust purpose. That, along with the trust terms, guides the administration of the trust. You are obligated to follow those terms whether you agree with them or not. The only time you are legally allowed to not follow a trust term is if the term is illegal, unconscionable, or impossible.
- Investing trust assets. When a trust works as intended, the original assets used to fund the trust will increase in value, usually through investments made by the Trustee. Because the assets are not yours, you must be extremely careful when you invest, always guarding the trust principal and remembering that you have a fiduciary duty to the trust and the beneficiaries.
- Keep detailed records. You are entitled to a fee for serving as Trustee. One reason to keep detailed records is to justify your fee. The other reason is to defend yourself as the Trustee or defend the trust if there is a dispute that results in litigation.
- Keep beneficiaries informed. You are responsible for keeping the trust beneficiaries informed of important trust business. Always respond to a beneficiary within a reasonable time frame.
- Distributing trust funds to beneficiaries. The trust terms will identify the beneficiary or beneficiaries and provide you with guidance for making distributions from the trust. The terms may be extremely detailed, telling you exactly how much to distribute and when to make the distributions or it may be vague, allowing you to make discretionary distributions.
- Justify discretionary distributions. If the trust does allow you to make discretionary distributions, keep a record of every time you make one and explain why you decided to do so.
- Conflict resolution. If there is more than one beneficiary, a conflict may arise between beneficiaries over trust business. As the Trustee, you have a duty to try and resolve the conflict.
- Defending the trust. Sometimes, a trust becomes involved in litigation. For example, a beneficiary may challenge the validity of the trust agreement. It is your job as the Trustee to defend the trust throughout the ensuing litigation.
- Paying trust taxes. A trust is a separate legal entity, meaning a trust pays taxes. As the Trustee, you are responsible for preparing (or having a professional prepare) tax returns each year and for making sure that any taxes owed to the state or federal government are paid on time.
Are You a North Dakota Trustee Who Needs Help Administering a Trust?
Please join us for an upcoming FREE seminar. If you are a Trustee who needs assistance administering a North Dakota trust, contact the Grand Forks trust administration attorneys at German Law by calling 701-738-0060 to schedule an appointment.
- Why a Pre-Paid Funeral Contract Might Not Be the Best Option - December 7, 2023
- The SECURE Act – the Gift That Keeps On Giving - December 5, 2023
- How Does My Age at Retirement Impact My Social Security Benefits? - November 30, 2023