When it comes to estate planning, trust administration is a critical component. The trustee is the person who is responsible for complete management of the trust property and other important duties. A trustee must know several really important facts to properly fulfill his or her duties. Here is a trust administration checklist to help you through the process.
Trust administration can be very complicated
Many people do not realize that trust administration is not as simple as just distributing money. One important thing to understand is the difference between trust income and trust principal. Many trusts treat income and principal separately.
For example, the trust may instruct the trustee to transfer the principal to one set of beneficiaries but transfer the income derived from the trust property to another set of beneficiaries. It is crucial that you understand what property goes to what beneficiaries so you won’t make mistakes. Below is a trust administration checklist for you to follow.
Be a fiduciary at all times
Trustees are expected to manage trust property in a way that serves the best interests of the trust beneficiaries. Being a fiduciary means being someone trustworthy and honest in every way when administering the trust. Trust administration includes a legal obligation to follow the trust’s instructions. Consequently, if you violate your fiduciary duties you may be held personally responsible. For this reason, a trustee must understand the scope of their duties before taking actions. [Hint: the trustee needs to make decisions in good faith at all times, be careful to follow the trust instructions and the law, and keep good records so the beneficiaries can see the trustee has done that.]
Ask for professional assistance
Considering the nature of the legal responsibility a trustee has, a trustee may sometimes need assistance from a professional with regard to trust administration and the trustee’s duties. This is especially true if the trustee is not experienced in handling investments. In fact, mismanagement of investments of trust property is one of the issues most often litigated. So if you need help, don’t be afraid to ask for it.
Remain neutral in all trust transactions
In a Charlotte trust administration, as a fiduciary, the trustee is required to remain neutral in all transactions. That means the trustee is expected to always look beyond their own interests and be fair to all beneficiaries. A trustee must comply with the provisions of the trust document. That is not always as simple as it may seem, particularly if the trustee has a relationship with the trust beneficiaries or the family involved.
Maintain a complete accounting of your activities
Trustees are also responsible for maintaining an accurate and complete accounting of every transaction that involves the trust property. In addition to mishandling investments, improper record keeping is a frequently litigated issue in trust administration. Therefore, you must keep a record of every decision made that pertains to the trust property, especially distributions. If you follow this rule, as a trustee you can defend all of your decisions and help avoid being held personally liable.
Address the issue of fees early in the process
Typically, trustees are permitted to request a fee for their services. In many states, trustee fees are governed by statute and what is reasonable can vary. Corporate trustees often provide trust administration services on a set fee schedule.
Even though trustees can receive compensation, most trustees do not actually request a fee. The reason is usually that the trustee has a relationship with the person who made the trust or the family and beneficiaries. However, once they have served as a trustee for several years without any compensation, having spent a significant amount of time performing their duties, people usually start to think about fees.
If this issue of fees has not been discussed ahead of time, then the trustee may have to deal with beneficiaries challenging the request. If you do not discuss your fees up front, a court may have to intervene and make the decision about what your fair compensation should be. So talk about the fee question early on to avoid misunderstandings.
Join us for a FREE seminar today! If you have questions regarding trust administration or any other estate planning matters, please contact the experienced attorneys at The Potter Law Firm for a consultation. You can contact us either online or by calling us at (704) 944-3245 (Charlotte, NC or Huntersville, NC) or for individuals in Kentucky, (606) 324-5516 (Ashland, KY) or (859) 372-6655 (Florence, KY). We are here to help!
John’s practice focuses on the use of Wills and Living Trusts in Estate Planning to help individuals protect their families and preserve their legacies after their deaths, but his practice also focuses on the critical issues of protecting individuals with dementia or other diminished capacity, assisting individuals in qualifying for Medicaid and other government benefits to offset the costs of long-term care, and providing special needs planning.
John is admitted to practice law in North Carolina, South Carolina, Kentucky, and Ohio, and he is accredited by the Department of Veterans Affairs.
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