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Are you Living up to your Legal Duties as a Trustee?

By Sarah Baker

March 26, 2019

Many individuals appointed as trustee of a trust feel completely unprepared to serve in this role. An all too often scenario occurs when mom and dad die leaving Junior as the back-up trustee of a trust Junior either didn’t know existed or knew existed, but has never actually seen.  A similar situation occurs if Junior is required to step in and serve as trustee while mom and dad are still alive, but no longer capable of acting as the trustee(s) of their own trust.  Because Junior has no working knowledge of the terms of the trust, Junior cannot possibly know what the trust requires—which is complicated further if Junior is not the sole beneficiary of the trust and has duties to other beneficiaries.  It is extremely important for Junior to meet with a trusted attorney to discuss Junior’s legal duties, some of which may be gleaned from the terms of the trust—assuming Junior doesn’t fall asleep attempting to read it—but some of which are less obvious.

First, it is important to know the basics. The main people involved in administering a trust are: the grantor, the trustee (along with the trustee’s advisors), and the beneficiaries.  The grantor or grantors are the person or persons who created the trust; in Junior’s case, this is mom and dad. The trustee is the person responsible for carrying out the terms of the trust.  Here, Junior was designated to serve the role of successor trustee to Junior’s parents. The beneficiaries are the individuals for whom the trust assets are intended to ultimately benefit.  Typically this is a class of individuals, such as mom and dad’s children and their lineal descendants; however, mom and dad are free to name any beneficiaries and may stray from the standard set-up, so the trustee should be careful in determining the identity of the beneficiaries.

Two of the most important things Junior needs to remember when serving as trustee are: (1) the assets of the trust do not belong to Junior and; (2) there are additional duties outside the trust which Junior must fulfill. The role of trustee is to safeguard the assets for the beneficiaries by following both the instructions in the trust and the rules imposed by the Trust Code.  Some of the most common duties of a trustee involve: gathering assets; identifying beneficiaries; maintaining accurate records; investing assets prudently; selling and maintaining assets; voting stocks; taking necessary action as a member/owner/shareholder of business interests; paying, prosecuting and contesting claims on behalf of the trust or trust assets; keeping beneficiaries informed; making necessary or discretionary distributions; and filing all required tax returns.

Considering Junior likely doesn’t prepare Junior’s own tax return or invest Junior’s own assets, Junior is likely to feel a bit overwhelmed by even the simplest of these tasks—let alone dealing with continued operations of an organization or voting stocks with which Junior is unfamiliar. Furthermore, some trusts contain a significant amount of “legalese” regarding the timing of distributions, the amount of distributions and the discretion of the trustee to make said distributions—which can leave Junior feeling confused. Additionally, it is important to be aware that the trustee’s responsibilities can have strict and relatively quick deadlines.  Failure to live up to Junior’s legal duties as a trustee can subject Junior to personal liability.  These are just a few reasons why it is so important for Junior to meet with a qualified attorney in a timely manner and build a trusted team of advisors that can help Junior succeed. 

If you are asked to serve as a successor trustee, you can make your life easier by asking the grantor to familiarize you with the trust and its provisions during his or her lifetime. You should know where the trust document, trust assets, insurance policies and other important documents are located, but shouldn’t be offended if the grantor does not want to disclose the value of all the assets in the trust, as this can be very sensitive for some people. The role of trustee is important and can be accomplished successfully with the right team of advisors. However, if it is ultimately a role with which you are too uncomfortable, it is important to know that most trusts have provisions for resigning as trustee and instructions for appointing a successor trustee. If you need assistance fulfilling a role as a Trustee, please feel free to contact Critchfield, Critchfield and Johnston, Ltd. for help.

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