Setting up a trust is one way to safeguard your assets before you eventually pass them down to your children and/or grandchildren. While setting it up, you identify the people you want to name as your estate trustees.
Naming your trustees is a task you cannot afford to take lightly. The responsibilities are enormous, and you must be certain they can handle them.
In this article, we will highlight the duties and responsibilities that estate trustees must handle. We will also give you tips for selecting your estate trustees. Continue with this article if you want to learn about those important topics.
What You Need to Know about Trusts and Trustees
To better understand the role of trustees, we first need to discuss what trusts are.
Trusts are legal entities that people can create to hold their assets. As the grantor, you can create different trusts based on your specific needs.
Living trusts can take effect while you are still alive, and you can use them to manage the assets in your possession better. A testamentary trust takes effect when you pass away.
You also have the option of forming revocable or irrevocable trusts.
Revocable trusts are ones you can easily modify while you are still alive. If certain circumstances change and you want to alter the contents of your revocable trust, your estate planning attorney can help with that.
You can modify irrevocable trusts only if the beneficiaries sign off on doing so. If they do not grant that permission, the trustees must follow the terms originally laid out by the grantor.
The idea behind setting up a trust is simple. With the help of a trust, you can preserve your assets and ensure that your heirs will benefit as much as possible. No matter what happens, you can rest assured that the inheritance you intend to provide will go to the right people.
Of course, that outcome is still contingent on everyone holding up their end of the bargain. If your estate trustees fail to fulfill their responsibilities, things can get complicated for your trust’s beneficiaries.
The Different Responsibilities of Estate Trustees
The estate trustee is the party you put in charge of your trust. More often than not, the grantor also serves as the trustee as long as they can handle the responsibilities associated with doing so.
Since grantors will not be around forever to manage the trusts they create, most of them name successor trustees. The successor trustee can be someone in your family, a friend, or your lawyer. In some cases, a company may even be the successor trustee of an estate.
We will get to the topic of choosing successor trustees later. For now, we want to shine the spotlight on the duties you must fulfill if you are an estate trustee.
Understand the Terms of the Trust Fully
Upon being named an estate trustee, your priority should be to study the trust. Doing this as early as possible is highly recommended. That way, you can still ask the grantor questions while they are still around.
Things commonly found in trusts include the assets, the names of the beneficiaries, instructions regarding distribution, and numerous other important details. You must familiarize yourself with those things to manage the trust effectively.
Recognize Your Fiduciary Duty
Trustees are legally bound to act as fiduciaries for the trusts they manage. So, what does that mean?
The fiduciary nature of your role dictates the things you can do with the trust. According to Cornell Law School, trustees must act in good faith upon assuming control of a trust. Any actions they take related to the trust must be for the good of the beneficiaries.
It is important to keep your fiduciary duty in mind while managing the assets included in the trust.
Using the assets for your gain is prohibited unless the grantor permitted it beforehand. When the time comes to distribute the assets, you cannot simply take ownership.
You should also avoid mixing your finances with the trust’s assets so you can manage them separately. Many even expect trustees to prioritize managing the trust over their personal assets.
Serving as a fiduciary for a trust can be intimidating, but it does not need to feel that way if you are not doing anything improper. You can steer clear of trouble as long as you handle the trust with the right mindset.
Settle Debts and Tax Payments
The time when a successor trustee takes over can often be chaotic. That is usually because numerous bills come due not long after the passing of the grantor.
As the trustee, you may need to use assets in the estate to pay for outstanding medical bills and burial expenses. If the grantor still owed others money at the time of their passing, settling those debts should also be on your to-do list.
Aside from those bills, you may also need to issue payments related to certain assets included in the trust. That will likely be the case, especially if the trust contains real estate properties.
Do not forget about the taxes that may now be due. The estate of the grantor may owe numerous tax payments to the government, and you should take care of those as soon as possible.
If you are having a tough time staying on top of which tax payments you need to make, remember that hiring an estate planning attorney is always an option.
Manage the Assets in the Trust
Taking care of the assets in a trust is also your responsibility as a trustee.
Physical items such as real estate properties, automobiles, and jewelry must be cared for and kept in good condition until you distribute them to their rightful owners. You must also maintain ongoing protection for the trust by taking out insurance whenever doing so becomes a necessity.
The grantor may also leave instructions detailing how they want you to manage the assets. In that case, you can follow their lead. Otherwise, manage the assets the same way you would your own.
Invest the Assets in the Trust
Part of asset management for estate trustees may involve making investments. The grantor may instruct the trustee to invest some of the trust’s assets so they can prove more useful to the beneficiaries down the line. If so, the trustee should seek out safe investment opportunities to minimize risk on the part of the trust.
There may also be cases where the grantor is not clear when it comes to investing the trust’s assets. In a situation such as that, the trustee may still decide to move forward with low-risk investments. Proceeding with those investments should not be an issue as long as they intend to grow the assets involved.
Maintain Records Relevant to the Trust
Estate trustees must also functionally serve in the role of record keepers. You must hold on to any document related to the trust and its contents.
The beneficiaries may look for those documents when you distribute the assets. Save yourself from unnecessary hassle and headaches by keeping and organizing those documents while you are in charge of the trust.
Keep the Beneficiaries in the Loop
Communicating with the beneficiaries is another key responsibility for estate trustees. Chances are that the beneficiaries will have questions. Do your best to answer those questions so they can be confident in how you are managing the trust.
You may also provide copies of documents that detail the current state of the trust to the beneficiaries. Make sure they are well aware of how you are using their assets.
Distribute the Assets in the Trust
Lastly, the estate trustee must distribute the assets to the rightful heirs. The grantor has likely left instructions behind detailing how they want them distributed. Your job is to follow their instructions.
Important Factors to Consider When Selecting an Estate Trustee
Selecting an estate trustee is not unlike choosing an executor of an estate. Given the important duties that an estate trustee must bear, you cannot afford to get this selection wrong.
Grantors also have a wide pool to choose from if they are looking for a trustee. About anyone over the age of eighteen can serve in this role.
You may be overwhelmed by the number of options you have available. To make that choice easier, we have provided some tips for selecting a trustee. Keep them in mind as you contemplate that decision.
Choose a Party That Can Handle the Workload of a Trustee Capably
Assuming the role of an estate trustee is almost like taking on a full-time job. That is why trustees receive compensation for their services.
When choosing a trustee, you must be certain they possess the time and capabilities to handle that role. If you are wondering why some grantors hire companies to serve as trustees, it could be because they do not want to burden a loved one with all the work that role entails.
Giving this role to someone swamped with responsibilities could put your trust at risk. You can also name multiple trustees so they can split the workload.
Name a Trustee That Is on Good Terms with Your Beneficiaries
The odds of a trustee going rogue and ignoring your wishes increase if they do not get along well with your beneficiaries. Even if they do not pocket money from the trust, they may still make questionable decisions to jeopardize the assets held inside of it.
Although New York law does allow beneficiaries to file a petition to remove trustees acting inappropriately, you never want to put them in that position in the first place. Avoid that nightmarish scenario by naming an individual or a company that gets along with your heirs.
Seriously Consider Lawyers and Trust Companies as Potential Trustees
If you were put on the spot and asked to name someone as your trustee, who would you choose? The first few names that you thought of probably belonged to people in your family, and understandably so. The people you love and trust most seem like ideal candidates to be trustees.
You may also be thinking of selecting them because doing so can preserve your assets. Remember, that things may not work out that way.
Unless your loved ones are already well-versed in estate laws and taxes, they will probably need to hire a lawyer to help them handle trust management. They may also hire other professionals to lighten their burden further.
In the long run, your assets may still pay for professional expenses anyway. Since that is a likely outcome, you might as well choose the professionals yourself.
Hire a lawyer who specializes in estate planning so you can be confident your trust receives proper handling. Trust companies may also do that for you.
Do not Shy Away from Choosing a New Trustee
This final tip is a reminder that your choice of trustee does not need to be final.
Circumstances change, and the person you selected as your trustee ten years ago may be completely different now. In that case, you can review your original pick and decide if they still deserve to be in that role. If you do not think they will do a good job, naming a different trustee is well within your rights.
Whether you need an estate planning attorney to consult with as you name your trustees or looking for a professional to take on that role, we at the Alber Law Group can help you out. Contact us today and let us help you get your trust in order.