A trustee serves as manager of the assets in a trust. The grantor, the person who creates the trust, chooses the trustee. With a revocable living trust, the trustee is usually the same person as the grantor. With an irrevocable trust, the trustee is usually someone other than the grantor.
The trustee’s primary jobs are to manage the assets of the trust and follow the terms of the trust. The trustee has a fiduciary duty to serve the interests of the beneficiaries, and not to benefit personally from the trust assets. With a revocable trust where the grantor, the beneficiary and trustee are all the same person, the fiduciary duty is moot. With an irrevocable trust, the fiduciary duty to serve the beneficiaries is paramount.
A Trustee’s duties include:
· Keeping investments and accounts of the trust separate from assets outside the trust.
· Not commingling assets of the trustee with assets of the trust.
· Not using trust assets for the trustee’s benefit.
· Treating all beneficiaries fairly.
· Developing an investment plan in a prudent manner to minimize risk and maximize growth (the “prudent investor rule”).
· Keeping accurate records of transactions of the trust.
Trustees have a duty to act in a reasonably prudent manner, and failure to do so may result in a breach of fiduciary duty, and legal liability.
When the grantor of the trust dies, the trustee “settles” the trust estate. A trust, like a will, states where assets go when you die. However, a trust, unlike a will, does not require a court proceeding called probate to transfer assets to the beneficiaries. Settlement of the estate using a trust saves time, money, keeps the estate private, and reduces the possibility of family conflict.
The trustee has obligations and duties similar to those of an executor. Some of the trustee’s duties when the grantor dies, include:
· A duty of loyalty to all beneficiaries and is responsible for safeguarding the assets for the beneficiaries.
· Locating and reviewing all important papers of the grantor.
· Making a list of all assets and establishing the value of those assets. The date of death value determines the new tax basis of appreciated assets for capital gains tax purposes and for accurate distribution of assets to the beneficiaries.
· Filing any necessary tax returns, depending on the assets and situation.
· Creating an accounting consisting of an inventory listing all assets existing on the date of death.
· Finally, the trustee will require a “receipt, release and waiver” from all beneficiaries acknowledging they have received what they are due under the trust and releasing the trustee from liability.
Serving as a trustee is a major responsibility, so the decision of who should serve as your trustee should not be taken lightly. At a minimum, your trustee should be organized and receptive to seeking out competent advice from an experienced estate planning attorney and other financial professionals.
Paul Kellogg is an attorney in Cincinnati with the Phillips Law Firm, Inc. Paul’s practice focuses on providing comprehensive estate planning and probate services to families and business owners, as well as serving as outside general counsel to entrepreneurs and businesses where he provides guidance and advice on a wide variety of transactions and disputes. He can be reached at (513) 985-2500 or via email at [email protected]. Please explore Paul’s other articles on estate planning and business on the Phillips Law Firm Blog page.
The article is for educational and informational purposes only and does not constitute legal advice. Anyone contemplating taking legal action is urged to obtain proper legal advice from an attorney licensed in your particular jurisdiction.