If you have been chosen as a trustee, it’s a representation of the grantor’s belief in your integrity, fiscal responsibility, and organizational skills. It’s an honor to oversee and manage a trust, but it comes with many obligations. Some trusts are quite complex, while others are more straightforward. It’s certainly possible for a non-professional to successfully perform their duties as a trustee if they are able to adhere to a few simple tenants.
Understanding The Scope of Your Duties
Before accepting the role of trustee, you should fully understand your duties and responsibilities as outlined within the trust documents and as a fiduciary. This includes a firm grasp of the terms of the trust, the laws that govern trusts in your state, the tax laws that apply to trusts, and your ethical obligations. If you’re unfamiliar with trusts or need clarification on what’s expected of you as a trustee, it’s best to get assistance from estate planning professionals to help you interpret the documents.
Maintaining Accurate Records and Complying with Tax Filing Requirements
The specific duties of a trustee may vary depending on the trust itself, but maintaining accurate records of all trust activities is critical across the board. As a fiduciary, you have to act in the best interest of the trust and beneficiaries. This requires keeping accurate and detailed records of all trust assets, income, expenses, distributions, and any other relevant transactions. You should also keep copies of all trust documents, particularly the trust agreement and beneficiary designations, in a safe place so that they’re always available. While assets of the trust will be held legally in your name as Trustee, you must never comingle the trust assets with your individual accounts.
The trustee is also responsible for all federal and state income tax filing requirements related to the trust. The tax rules are different depending on whether the trust is deemed a grantor trust or non-grantor trust for income tax purposes. If you are unfamiliar with the differences between these designations or do not understand the fiduciary income tax rules you should consult with an estate planning or tax professional who can assist you.
Communicating with Beneficiaries and Understanding their Needs
A trust may have one or many beneficiaries. Each beneficiary depends on you to communicate all matters involving the trust. They should be informed about the trust’s activities, progress, and major developments. You should be available and willing to respond to their questions or concerns and make consistent and timely distributions as necessary.
The beneficiaries may also rely on the trustee to fully interpret the terms of the trust, including the terms that direct distributions to the beneficiaries.
Certain trusts (often referred to as Special Needs Trusts or Supplemental Needs Trusts) are specifically designed for beneficiaries who are disabled, incapacitated or receiving government benefits. These types of trusts have an additional level of complexity due to the need to strictly comply with the laws and regulations governing government benefits. It is recommended that a trustee of these types of these trusts consult with an estate planning attorney who understands the governing laws for Medicaid, SSI and other means based government benefit and who has experience in administering Special Needs Trusts.
Seeking Professional Guidance
Trust administration can be a challenging task for trustees. There are always potential obstacles that need your attention. Occasionally, there may be complications with financial matters, legal roadblocks, or disputes between beneficiaries. Unfortunately, not every problem is predictable. Trustees are not expected to be legal professionals, and having experienced estate planning attorneys on your side can help you mitigate some of these risks.
If you’re uncertain about the terms of the trust or your specific responsibilities, an attorney can help you interpret the documents so that you can fulfill your duties successfully. Failing to comply with governing laws and following through with what’s expected of you as a trustee could lead to legal issues. Beneficiaries or even the grantor can accuse you of malfeasance or embezzlement and file a lawsuit against you, which makes working with an attorney that much more important.
As a new trustee, you may find your duties to be challenging but ultimately rewarding. For those considering establishing a trust, understanding the expectations of a trustee may help you decide on the best possible candidate. The experienced team at Linville Law Office, PLLC, assists trustees and grantors with trust documents on a daily basis. Give us a call at (704) 323-6712 to schedule an in-person consultation at our office located in South Charlotte or a virtual visit for your convenience.