Trusts have become almost commonplace in a well thought out estate plan due in large part to the flexibility they offer in reaching estate planning goals. If you are considering the inclusion of a trust in your estate plan, you will need to make a number of decisions during the creation of the trust, including who to appoint as the Trustee of your trust. If you have never before created a trust, you will also likely have a number of questions, such as whether a Trustee gets paid. The Lincolnshire trust administration attorneys at Hedeker Law Ltd. explain the role of Trustee and answer questions about Trustee compensation.
Trust Basics for the Beginner
A trust is a legal relationship where property is held by one party for the benefit of another party. The person who creates a trust is referred to as the “Settlor”, “Trustor” or “Grantor.” The Settlor transfers property to a Trustee, appointed by the Settlor. The Trustee holds that property for the trust’s beneficiaries, also named by the Settlor. The overall job of a Trustee is to protect and invest trust assets and to administer the trust terms found in the trust agreement. Trusts all fall into one of two categories – testamentary or living trusts. A testamentary trust is activated by a provision in the Settlor’s Will at the time of death whereas a living trust activates once all formalities of creation are in place and the trust is funded. Living trusts can be further divided into revocable and irrevocable living trusts. Because a testamentary trust is activated by a provision in the Settlor’s Will, and a Will can always be revoked up to the time of the Testator’s death, a testamentary trust is also revocable up to that point.
The Role of Trustee
The overall job of a Trustee is to manage trust assets and administer the trust. The following are some of the more specific duties and responsibilities your Trustee will have:
- Manage and protect trust assets
- Abide by the trust terms unless they are impossible, illegal, or unconscionable
- Invest trust funds using the “Prudent Investor Standard”
- Monitor trust investments
- Communicate with trust beneficiaries
- Resolve conflicts among beneficiaries
- Make discretionary decisions
- Distribute trust funds to beneficiaries
- Approve or deny distributions if given discretionary authority
- Keep trust records
- Prepare and pay trust taxes
As you can see, many of the tasks of a Trustee involve understanding complex state and federal laws that apply to trusts. Ideally, a Trustee should have prior experience in the legal field and/or a working knowledge of the laws involved. As the Trustee, he/she will also be responsible for investing and growing the trust assets. Consequently, a Trustee should ideally have the experience and/or education to be able to take on this responsibility successfully.
Trustee Compensation
The Trustee of a trust will contribute immensely to the success, or failure, of the trust. Given the importance of the Trustee, and the time a Trustee must dedicate to his/her duties and responsibilities, it is only fair that the Trustee be compensated. How much a Trustee is paid will depend on several factors, chief among those being the terms of the trust agreement itself. The Settlor may include terms that address the Trustee’s compensation. If the Trustee is a professional, such as a CPA or attorney, the trust agreement may authorize payment at the Trustee’s normal hourly rate. If the Trustee is a corporation, compensation may be a percentage of the value of the trust assets. If the trust agreement is silent on the issue of compensation, the Trustee must be paid a “reasonable fee.” That fee is considered a yearly trust expense, meaning it is paid out of the trust assets. If there is ever a dispute regarding Trustee compensation, a probate judge may review the trust agreement and the Trustee’s records to determine if the Trustee is being overpaid or underpaid.
Contact Lincolnshire Trust Administration Attorneys
Please join us for a FREE upcoming seminar. If you have questions or concerns regarding Trustee duties or compensation, contact an experienced Lincolnshire trust administration attorney at Hedeker Law, Ltd. by calling (847) 913-5415 to schedule an appointment.
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