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When creating any type of trust, the creator of the trust (called a “trustor” or “settlor”) needs to nominate someone or an organization to be their trustee. Usually the Trustor nominates himself or his spouse to be the original trustees, but some may nominate their bank, attorney, financial planner or children to be a trustee. Many people do not know what is involved in managing a trust as a trustee or successor trustee. Many people view being nominated as a trustee as a showing of confidence and judgement of their abilities, which is very true. However, it is also a major responsibility. Today on the Tulsa Estate Planning Blog, the offices of the Skillern Law Firm will help you realize the duties of a trustee.
- Duty to Administer the Trust by Its Own Terms. The trustee has a duty to administer the trust, as well as manage the trust assets, in a way that follows the exact terms of the trust agreement/document. The trustee needs to follow the terms of the trust as they are written on the document’s face, without trying to interpret the language. If there needs to be interpretation, then the trustee should use their best judgment or seek out legal advice on how to correctly follow the terms of the trust. No deviation is allows from clear and concise language of the trust, unless a court of law has shown them to be against public policy.
- Fiduciary Duties & Responsibility. A trustee has a “fiduciary” duty to the beneficiaries of the trust. The beneficiaries include current or “remainderman” beneficiaries (like grandchildren that may inherit if their parents pass away). As a fiduciary, the trustee shall be held to a high standard. This means that the trustee must pay closer attention to the trust investments and disbursements than you would for your own accounts.
- Investment Standards: When acting a trustee, the investments you make cannot place the trust’s assets in speculative or risky investments. In addition, as stated similarly above, the investments must be made with the beneficiaries and contingent beneficiaries in mind. As trustee, you may need to balance the benefits of many types of investments, since some may benefit certain types of beneficiaries more than others. For example, some beneficiaries may need some long-term investments as compared to others, who will not be depending on the income as much. All of these questions, and more, need to be considered when deciding on an investment scheme for the trust.
- Distributions. Many trusts give the trustee complete discretion when it comes to hanging out distributions of the trust assets to the trustee. The trustee needs to decide when to hand out distributions, based on the beneficiary’s needs, his/her future needs, and their other sources of income. The trustee must also look at the total amount of trust assets and what would be the best way to hand out distributions based on the total amount of beneficiaries. Many times, beneficiaries will repeatedly ask the trustee for a distribution, and the trustee must have the discretion to say “no” when it would not benefit the trust or the trustee.
- Accounting. One of the most important jobs of a trustee is to keep track of all income, distributions, expenditures, and general accounting of the trust estate. Most trusts, including the ones created by the Skillern Law Firm, include provisions in the trust document that makes it to where the trustee must give the beneficiaries of the trust an accounting at least once a year. Many trustees hire qualified CPA’s for this duty, and the trust most likely has the ability to pay for those services.
- Taxes.Another duty of a Trustee that needs a qualified CPA is paying the Trust taxes. Depending on the type of trust created and being handled by the Trustee, the trustee will need to file an annual tax return in the trust’s name, and may need to pay income or trust taxes. A trustee will need to keep accurate records and keep a qualified CPA on hand to handle this duty well.
- Delegation. As you can probably already tell, a Trustee will need to have great delegation skills to be able to maintain and manage the trust assets. This includes hiring an attorney, qualified CPA, financial adviser, or any other professional needed. The duties of a trustee can be much better handled with the help of professionals, and the offices of the Skillern Law Firm recommends using professionals when making any important decisions about the trust. Communication is also very important when you delegate, so you and your professional knows what the goal of the trust, and how that can be best handled.
- Fees and Expenses. In Oklahoma, Trustees are entitled to a statutory fee that is considered “reasonable.” Usually family members and friends do not accept fees, but they may and can request such fee. Professionals will charge a fee, and those can be paid from the trust estate. Trustees can decide what professionals to pick, and can base their decision based on the expense, however, price is not always the best choice.
Acting as a trustee or successor trustee for a Living Trust is a great opportunity to help a friend and/or family member, and can build some great relationships. The work is hard, but it is manageable, especially when using professionals to help manage the trust. Being a trustee is a wonderful opportunity to grow, but please be aware that it is not a job to be taken lightly.
If you are a trustee of a trust or are interested in creating a trust, call the offices of the Skillern Law Firm, PLLC today.