A comprehensive estate plan will typically include a wide variety of estate planning tools and strategies that help achieve the various inter-related estate planning goals and objectives within the plan. One of those tools is a trust. Although once used almost exclusively by wealthy families as a way to pass down the family wealth without paying taxes on the transfer of wealth, trusts are now found in even the most simple of estate plans. If you plan to include a trust in your estate plan, you will need to appoint a Trustee to administer the trust. A common mistake people make when appointing a Trustee is to appoint someone close to them, such as a spouse or close friend, without considering the individual’s suitability for the job. To prevent you from making this mistake, there are some trust administration questions you need to ask yourself when deciding who to appoint as your Trustee.
What Is Involved in Trust Administration?
Often, what leads a Settlor ( the person who creates a trust) to appoint the wrong person as Trustee is the simple fact that they are unaware of the numerous and varied duties and responsibilities involved in trust administration. Many of those duties and responsibilities involve financial and/or legal skills and experience. Learning what is involved in trust administration, therefore, is a good place to start when deciding who to appoint as your Trustee. Among the many duties and responsibility of a Trustee are:
- Making sure trust assets are secure
- Investing trust assets so they will grow
- Communicating with beneficiaries about trust business
- Resolving disputes among beneficiaries
- Keeping detailed records of trust business
- Understanding the laws relating to the trust
- Calculating and paying any taxes owed by the trust
- Disbursing trust assets pursuant to the terms of the trust
- Deciding whether or not to make discretionary disbursements
Questions to Ask Yourself When Appointing a Trustee
When creating your trust, you will need to decide who to appoint as your Trustee. If you have someone in mind for the position, ask yourself the following questions before making a final decision
- How complex is my trust? A trust agreement can be extremely simple or unbelievably complex. The value and complexity of the assets you plan to transfer into the trust, the number and type of beneficiaries, and the details of the trust terms should all be taken into account when evaluating how complex your trust is. The more complex the trust, the more important it is to appoint a Trustee with the skills, education, and experience needed to administer the trust.
- Do I need a professional Trustee? Given the numerous duties and responsibilities of a Trustee, and the level of financial and legal knowledge necessary to successfully administer a trust, many people choose to appoint a professional Trustee instead of taking a chance on a non-professional.
- Does my potential Trustee have any legal experience or education? Even if your trust is relatively simple, your Trustee must have the ability to understand the legal aspects of the trust agreement specifically and understand the state and federal laws relating to trusts in general.
- Does my potential Trustee understand the world of finance? Your Trustee must have the financial acumen necessary to manage and invest the trust assets or the trust will fail. In addition, he/she must understand the “prudent investor standard” that applies when investing trust assets.
- Does my potential Trustee have the time and inclination to serve as Trustee? Don’t ever assume that someone is willing to be your Trustee. Sit down and ask an intended Trustee if he/she has the time to devote to administering your trust and if he/she is willing to do so.
- Would there be any obvious conflicts? One problem with appointing a spouse, friend, or family member as Trustee is that it frequently creates an automatic conflict because that individual is related to, or at least has a relationship with, one or more of the trust beneficiaries. For obvious reasons, it is best to avoid conflicts such as this when possible.
Contact Trust Administration Attorneys
For more information, please download our FREE estate planning worksheet. If you have additional questions or concerns regarding trust administration and/or the appointment of a Trustee, contact the experienced trust administration attorneys at Hedeker Law, Ltd. by calling (847) 913-5415 to schedule an appointment.