Mastering Trust Administration: A Comprehensive Guide on Trustee Roles & Effective Management Strategies
Trust administration is a complex topic. We’ve covered the basics of trust administration in our past blog, and it’s a great source of general information on trust administration. Here at Rilus Law, we are serious about empowering you by providing free resources on these topics. Thus, we’ve created this supplementary post to further discuss trust administration and what you need to know.
A Review of Trust Basics
First, let’s review the basics. A trust is a legal tool that allows a trustor (the creator of the trust) to assign a trustee (a second party) to manage the trust. The trustor transfers the ownership of their assets (bank accounts, real estate, investment accounts, etc.) to the trust. The trustor assigns trust terms, issues instructions, and names their beneficiaries (the people, organizations, etc.) who will benefit from the trust. While the trustor is living, they are usually also the trustee. However, they name a successor trustee in the trust to handle trust administration after their passing. The successor trustee has the fiduciary (i.e. legal) duty to manage and administer the trust according to its terms, in good faith, and for the best interest of the beneficiaries.
Optional Trust Roles
Aside from the key players above, a trustor can also elect to have a trust protector. As the title suggests, a trust protector is an additional party that aims to protect the trustor’s interest. A trust protector oversees the trustee and ensures proper trust administration. The trust protector can have the power to remove or replace the trustee as a form of asset protection.
Another optional party involved in a trust is a trust attorney. A trustor can enlist the professional service of a lawyer to advise and guide the trustee on trust administration. The trust attorney makes sure that the trustee executes the terms of the trust in compliance with trust laws, estate tax laws, and similar legal matters. They can also help resolve legal disputes or lawsuits involving beneficiaries, debtors, and other parties.
Types of Trustees
Trust administration can vary depending on the type of trustee. Below is a list of the common types of trustees. Each type of trustee may have specific tasks and responsibilities that differ from those of the other types.
Successor trustees are people who step in to manage a trust when the person who created the trust is unable to do so through death or incapacitation.
Charitable trustees manage funds left in a charitable trust and follow the instructions left by the creator of the trust.
Investment trustees manage the day-to-day operations of an investment account, helping it to grow over time.
Corporate trustees work with large firms that manage trusts for clients that pay them. Other types of trustees are not always paid for their services like corporate trustees are.
Bankruptcy trustees step in when a person or business declares bankruptcy and their assets need to be administered. These trustees are appointed by the U.S. Bankruptcy Court.
Furthermore, being a voluntary trustee or paid trustee can make a difference in trust administration. Family trusts are often administered by voluntary trustees who have no formal education or training in trust administration. As such, there is a high risk that they can fail to administer the trust properly and meet the trustor’s expectations. Investment trustees who get paid from the investments they make can focus heavily on the investment side of the trust, missing other essential areas of trust administration. However, all successor trustees can be paid a reasonable fee for their time. It is best to handle payment for trust administration with the guidance of an experienced trust administration attorney.
The Trust Administration Process
As we’ve discussed in our previous post, the trust administration process for family trusts includes the following steps:
Preparing and gathering assets
Paying obligations
Making distributions
The above are the typical steps, but there are cases where additional steps are necessary. The following are some of these additional steps:
Communicating with Beneficiaries
In cases where beneficiaries request information related to the trust, the trustee must provide these. Unless the trust stated specifically to keep this information confidential, the beneficiaries have the right to any pertinent information on their benefits and other asset information. The trustee must maintain transparency of trust administration and prepare the necessary documents to keep all parties up-to-date on trust status and issues.
Furthermore, in cases where there are changes in the trust terms, major decisions, and similar issues, the trustee must organize meetings with the beneficiaries and related individuals. These meetings keep the line of communication with the beneficiaries open. These meetings are the ideal venue to discuss the trust records and other information. Thus any issue or misunderstanding is addressed early, preventing major disputes, or worse, lawsuits.
Managing Trust Assets
In cases where the trust must be administered for a certain period, the trustee must perform the necessary steps to preserve, maintain, or grow the trust assets. For example, when there are minor beneficiaries and the trust must wait for them to reach their legal age to make distributions. Another is when the beneficiary needs continuous care or health support. The trustee must ensure that the funds for these purposes are preserved or invested, ensuring that the terms and the goals of the trust terms are met.
Terminating a Trust
In cases where the trust must be terminated, upon completion of the terms or for any other reason, the trustee must perform the necessary termination steps. One of these steps is the final distribution of the remaining assets of the trust. This step ensures that the trust has met its purpose and has accomplished the instructions set by the trustor. Next, the trustee must also file the necessary final tax returns and pay any outstanding taxes, ensuring tax compliance and avoiding tax violations that lead to penalties or legal charges. Finally, the trustee must also formally close the trust by filing the necessary documents. This involves preparing a final accounting of the trust assets for the record for future reference and the beneficiaries’ information.
Trust Administration Support
Trust administration may seem simple on paper, but it can get complicated according to your specific situation. We hope that the additional information has provided valuable support for your estate planning or trust administration. At Rilus Law, trust administration is one of our focused practice areas, and we're dedicated to providing expert guidance and support tailored to your unique trust administration needs. If you need further assistance with either setting up your trust or navigating trust administration, feel free to reach out to us with your questions. You can give us a call or schedule a free consultation with us today.