Creating a comprehensive estate plan usually requires you to incorporate a variety of estate planning strategies and tools in order to achieve all your estate planning goals. One of the most common of those tools is a trust. Although trusts have evolved to the point where there is a specialized trust for almost any estate planning goal, the basic elements that are required to create a trust remain the same. One of those elements is a Trustee. The Trustee of the trust is responsible for administering the trust, which is an over-simplified explanation for what can often be a very complex job. An Annapolis trust attorney at Sinclair Prosser Gasior explains what it means to administer a trust.
What Is a Trust?
A trust is a relationship whereby property is held by one party for the benefit of another. A trust is created by a Settlor (also referred to as a Maker, Trustor, or Grantor), who transfers property to a Trustee. The Trustee holds that property for the trust’s beneficiaries.
What Is Involved in the Administration of a Trust?
Trust administration requires a Trustee to protect, grow, and distribute the trust assets using the trust terms created by the Settler. The specific duties and responsibilities of a Trustee during the administration of a trust may include:
- Managing and protecting assets. Trust assets can include almost anything of value. The Trustee is responsible for any and all assets held by the trust. Consequently, this could mean something as simple as reconciling bank statements or something as complex as maintaining real property.
- Using the trust terms to administer the trust. The Settler has great latitude when creating the trust terms. Unless the terms of a trust are impossible, illegal, or unconscionable, the Trustee is required by law to use the terms, exactly as written by the Settlor, to administer the trust.
- Understanding and using the “Prudent Investor Standard.” The Trustee of a trust is responsible for managing someone else’s assets, meaning they are in a fiduciary role. Investments, therefore, should never be risky. One of the most important rules for a Trustee when administering a trust is that guarding the principal should always be the primary focus with a return on investments secondary.
- Communicating with the trust beneficiaries. The Trustee of a trust has an obligation to keep the beneficiaries of the trust informed of all trust business and to correspond with the beneficiaries when necessary.
- Conflict resolution. Conflicts and disputes among beneficiaries can occur during the administration of a trust. A Trustee must remain neutral and attempt to resolve conflicts before they escalate and/or before they result in litigation. If the trust includes future beneficiaries as well, the Trustee must also consider their best interests when resolving disputes.
- Making discretionary decisions. If the Settlor gave the Trustee power to make decisions regarding investments and/or disbursements, part of administering the trust will include making those discretionary decisions.
- Distributing trust funds to beneficiaries. All trusts distribute the trust assets at some point, to someone. The trust terms establish how and when this is done by the Trustee.
- Keeping detailed trust records. Ultimately, accountability for the success, or failure, of the trust will lie predominantly with the person (or entity) that administers the trust – in other words with the Trustee. With that in mind, the Trustee needs to keep detailed records of everything involved in administering the trust.
- Preparing and paying trust taxes. Because a trust is a separate legal entity, a trust is taxed which means the trust must file a tax return every year. Completing the tax return and ensuring that any taxes due is part of the administration of the trust by the Trustee.
Contact an Annapolis Trust Attorney
For more information, please join us for an upcoming FREE seminar. If you have additional questions or concerns about trust administration, contact an experienced Annapolis trust attorney at Sinclair Prosser Gasior by calling (410) 573-4818 to schedule an appointment.