Estate Planning

What Is Trust Administration?

Although once used almost exclusively by wealthy families, trusts are now commonly found in the average person’s estate plan. If you are contemplating the addition of a trust to your estate plan, it is important that you choose the right Trustee to administer that trust. Understanding the trust administration process a little bit better may help you choose the right Trustee. Toward that end, an Indianapolis trust administration attorney at Frank & Kraft explains what is involved in administering a trust.

Choose
Your Trustee Wisely

One of the most common
mistakes a Settlor (the creator of a trust) can make is to appoint the wrong
person as Trustee. This often happens when a Settlor appoints someone close to
them, such as a spouse, close friend, or relative as the Trustee based solely
on their relationship to the individual instead of on the individual’s ability
to perform the job of Trustee well. Ultimately, this can lead to the failure of
the trust if the Trustee ends up in over his/her head and doesn’t seek the help
and guidance of a professional in time. To avoid making this common mistake,
make sure you have a firm understanding of what is expected of a Trustee and
then take the time to choose the right person for the job.

What
Is Involved in Trust Administration?

To understand the importance
of choosing the right Trustee, you need to understand what is involved in
administering a trust. Trust administration involves a wide range of duties and
responsibilities, including:

  • Following
    trust terms
    — the Trustee
    of a trust is required to abide by the terms of the trust, as created by the
    Settlor, unless a term is illegal, impossible, or unconscionable. This requires
    the Trustee to understand the terms and to have the ability to follow a term
    even if the Trustee doesn’t personally agree with the term.
  • Managing
    trust assets
    – this could
    require something as simple as monitoring and filing bank statements or
    something as complex and time-consuming as handling the maintenance and upkeep
    of real property or a business.
  • Investing
    trust assets
    – ideally, the
    assets held in a trust are income producing assets. This, however, requires the
    Trustee to invest those assets wisely. A Trustee must always use the “prudent
    investor standard” which dictates conservative investments wherein the trust principal
    is never at risk.  Moreover, because a
    Trustee is in a fiduciary role, he/she must be more careful with trust assets
    than the Trustee would be with his/her own assets.
  • Keeping
    detailed records
    – because a
    Trustee is managing assets intended to benefit a third party, and receives a
    fee for that management, very detailed records should always be kept.
  • Communicating
    with beneficiaries
    – a Trustee is
    responsible for keeping beneficiaries informed of all trust business in a
    timely manner.
  • Resolving
    conflicts
    – if a conflict arises. the
    Trustee must defend the trust in any litigation. If the conflict is among
    beneficiaries, a Trustee should act as a mediator try and resolve the conflict.
  • Paying
    taxes
    – a trust is a separate
    legal entity, meaning taxes must be prepared and paid each year by the Trustee.
    Even if a Trustee hires a CPA to prepare the trust taxes each year, the Trustee
    should have sufficient financial skills to understand the tax return and any
    obligation the trust has for paying gift and estate taxes.
  • Distributing
    assets
    – the Trustee is
    responsible for distributing trust assets to the designated beneficiaries
    according to the terms of the trust.
  • Making
    discretionary decisions

    typically, a Trustee has some degree of discretion. Some Settlors give a
    Trustee only a token amount of discretion in case of an emergency while other
    provide a Trustee with the discretion to make major trust decisions.

Contact
an Indianapolis Trust Administration Attorney

For more information, please download our FREE
estate planning worksheet
. If you have additional questions or
concerns about administering a trust, contact an
experienced Indianapolis trust administration attorney at Frank & Kraft by calling (317) 684-1100 to schedule an
appointment.

The post What Is Trust Administration? appeared first on Frank & Kraft, Attorneys at Law.

%d bloggers like this: