What is a Trustee?
MyTrustCo will help you by providing explanations, checklists and sample forms.
The Basic Role of a Trustee
While volumes have been written about the laws, duties and role of a Trustee, the administration of a Trust can involve a lot of discretion by the Trustee and is therefore as much art as science. At its core you must remember a few simple rules:
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You owe your best efforts to preserving the Trust assets and making them productive for the current beneficiaries AND the beneficiaries that will have an interest in the assets at some point in the future (aka "remainders"; "remainder beneficiaries").
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An essential part of your job is to know the beneficiaries of the Trust: their needs and their entitlements under the Trust Agreement.
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You are responsible for making sure the beneficiaries receive income from the assets, part of the principal of the assets or both. The Trust document will guide you your powers to distribute funds and the entitlements of the beneficiaries. The right to receive funds may be mandatory (e.g. …the Trustee shall pay…) or discretionary (e.g. …the Trustee may pay in the Trustee's discretion…).

- Read the document and be sure you understand what it is asking you to do. Pay (from the Trust assets) for an attorney to explain anything you don't understand. (You should be able to pay reasonable legal fees from the Trust as an expense of administration; your attorney should confirm your ability to do so.)
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Do a professional job or see that it is done. What you can't do on your own (e.g. investing; tax preparation) you should hire professionals to do. The Trust, or state law, usually allows you to hire agents and compensate them from the assets of the Trust. (Confirm at the time you are appointed or asked to be a Trustee.) Note: while the Trustee can usually hire agents, the Trustee will be responsible for the selection of an agent with the appropriate skill set and for overseeing the work of the agent.
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Most important: document every decision you make and keep copies of letters, emails, tax returns and anything related to the administration of the Trust. This is your record of your administration. The record will be important to any successor Trustee, and it will be absolutely essential if you ever have to defend your actions as a Trustee.
Income and principal accounting: It is a fundamental requirement for a Trustee to keep track of income earned by the Trust separate from the principal appreciation of the portfolio. The basic Trust structure gives one class of beneficiary the entitlement to income, and the remainder class of beneficiary an entitlement to principal. While there are variations on this structure where the lines can be blurred, this is a record keeping obligation of the Trustee. Corporate Trustees have accounting systems designed to automatically record the income in a separate column or "bucket". Individual Trustees can use their systems by hiring them as agent, or rely on an accountant to break out the income earned by the Trust portfolio.
Remainder/Remainderman, Remainder Beneficiaries, Future Beneficiaries: The individual or class of individuals (e.g. "heirs", "issue", "children") or institution (e.g. another Trust or Charity) named in the Trust Agreement to benefit after the current beneficiaries pass away or after a period of years defined in the Trust. The remainders will typically take the remaining balance of the Trust outright in their own name. If there are multiple remainders they will take the percentage share allocated to them in the Trust. Remainders are not to be confused with succeeding current beneficiaries who are named to become current beneficiaries of the Trust when an initial current beneficiary passes away.
Current Beneficiaries: The individual, class of individuals, or institutions named to have an immediate (current) interest in the Trust. Typically they have either a mandatory right to income (e.g. "the Trustee shall pay the net income") or a discretionary right to all or some of the income (e.g. "the Trustee may pay in the discretion of the Trustee"). They may also have a right to principal of the Trust through the Trustee's discretion or a withdrawal power granted them in the Trust. If the right is discretionary, the Trust will typically give the Trustee either a blanket discretionary power or limit the discretion to certain needs (e.g. health, education, maintenance, support). If the discretion is broad it will often include terms like "comfort" and "happiness".
Grantor/Trustor/Settlor/Creator: These are different names given to the individual creating the Trust by causing a legal document to be drafted and funding the Trust with cash, securities or other assets.
Co-Trustee/Co-Fiduciary: Names given to any individual or institution named as a Trustee when there is more than one Trustee. A Co-Trustee will typically share the same duties, responsibilities and liabilities equally with the other Trustees. In some cases the Trust Agreement may carve out certain duties for each Trustee, but generally they share equally in the management of the Trust.
Protector: The Trust may create the role of a Trust Protector which is different from that of a Trustee. While a Trustee it typically responsible for everything that happens with the Trust, a Protector is usually restricted to some specific duties such as change of situs for the Trust, and/or removal and appointment of the Trustee. The concept of a Protector was very common in the Offshore Trust practice but is gaining acceptance with domestic (U.S. based Trusts) as well.
Offshore Trust: Any Trust having its situs (legal location), Trustee and therefore place of administration outside the United States. [Trusts having a situs, Trustee and place of administration within the United States are typically referred to as "domestic" Trusts.]
Distributions: Paying out income or principal from the Trust is one of a Trustee's most important duties, and if left to the discretion of the Trustee, one of the most difficult. It can also be one of the most contentious areas of the administration of your Trust and therefore has the potential for challenge and for liability. "Mandatory" distributions are required by the Trust (e.g. "The Trustee shall pay the net income."). "Discretionary" distributions are those permitted by the Trust in the discretion of the Trustee. (e.g. "The Trustee may pay to the children of the Grantor such sums as may be necessary…for health, support, maintenance, and education.").
Distribution Committee: Usually found only in Trusts drafted for "modern" Trust law states, a Distribution Committee is given the responsibility to distribute funds from income or principal. The Trust is usually structured so the Trustee takes instruction from the Committee and is relieved of all liability for the result of following those instructions. Historically found in offshore Trusts, Distribution Committees are now finding their way into domestic Trusts.
Unitrust: There are now at least two types of Unitrusts. The distinctive characteristic of both is a distribution based on a percentage of the market value of the Trust, revalued annually.
- A Charitable Unitrust available under the IRS Regulations where an individual can create a "split interest" trust [meaning two unrelated beneficial interests within the same Trust Agreement] for a charity and for family. With a Charitable Lead Unitrust a fixed percentage is paid to a recognized (by the IRS) charity for a period of years with the remainder going to family members. A Charitable Remainder Unitrust reverses the order and a fixed percentage of the Trust is paid to the Grantor for life or a period of years with the balance (remainder) going to a recognized charity.
- Private Unitrusts (meaning no charitable interest involved) are now available in many states that have adopted versions of the Uniform Principal and Income Act (UPAIA). Where available the law will allow the Trustee to elect (a discretionary decision that should be documented) to pay out a percentage of the market value of the Trust as "deemed income". The percentage paid is usually between three and five percent (3% to 5%) and will be considered income even if some principal funds are paid out as part of the percentage. Usually the Trustee must also elect to invest the Trust for "total return" meaning to have a fairly aggressive investment allocation that seeks to maximize the growth of the Trust within reasonable risk parameters.
Trustee Tip:
While charitable unitrusts are baked into the Trust Agreement, private unitrusts are usually a discretionary election by the Trustee after considering the best interests of the beneficiaries, the purpose and the structure of the Trust. It is a decision that should also be reviewed every year or when circumstances change. MyTrustCo.com has sample Unitrust and Power to Adjust discretionary action forms in the member section.
Power to Adjust: Like a unitrust, the Power to Adjust is available for private (non-charitable) Trusts as a discretionary option for the distribution of income by the Trustee.
- The Trust must be governed by a state law which includes the adoption of the Uniform Principal and Income Act (UPAIA) which will in part authorize the use of the Power to Adjust.
- The Trustee can use the Power to Adjust to achieve fairness between the current and future classes of beneficiaries of the Trust.
- The Power can be used on a one-time basis to adjust funds from income to principal, or from principal to income if that will further the impartial treatment of the beneficial classes. (For example, if an asset like undeveloped land or a family business is held in principal for many years without producing income for the income beneficiaries, and that asset is finally sold for a windfall, then the remainder beneficiaries will have benefited from the investment at the sacrifice of the income beneficiaries who received nothing during the holding period. In this case, the Trustee could exercise her discretion to use the Power to adjust a sum from principal to income representing a fair share of the investment for the income beneficiaries. The Trustee would be advised to have professional advice on the right allocation documented and on file.)
- The Power can also be used on an ongoing basis to pay out a percentage of the market value of the Trust as "deemed income" to the income beneficiary. Again, the percentage is usually between three and five percent (3% to 5%) and the decision should be documented and reviewed annually. Once the Trustee determines the percentage to pay, principal may be used if necessary to make up the "deemed income" amount. The Trust is usually also invested for total return to maximize the overall growth of the portfolio within reasonable risk parameters.
Many professional Trustees prefer the Power to Adjust over the unitrust option as it is less formal and can be modified or cancelled at anytime by the exercise of the Trustee's discretion. [Note: the Trustee should also consider the tax implications of the percentage payment: will the payment be gross of its representative share of capital gains if principal is used, or net?]
Uniform Principal and Income Act (UPAIA):Also mentioned above, UPAIA is a uniform rule created by academics and recommended for use in each state's body of Trust law. Some states will adopt it in it's entirety, but most state will adopt a modified version of it. In addition to authorizing Unitrusts and the Power to Adjust, the act addresses how a Trustee should treat various expenses (legal fees, real estate taxes, etc.) and where certain extraordinary receipts (liquidating dividends for example) should be credited: principal or income? The Trust Agreement may address this as well, and will always override state law, but to the extent the Trust is silent, the Trustee may look to the state law.
Prudent Investor Rule: The current standard applied to a Trustee's duty to invest the assets of the Trust. A Trustee must act "prudently" when making investment decisions. This is a gray area with no bright lines. Generally it means no speculation, no investments made without research, no concentrations of any one investment, and each investment made to further the purpose of the Trust and the interests of the current and future beneficiaries.
- Will the investment provide income for the current beneficiaries?
- Will it provide growth to maintain purchasing power of the portfolio over time, and for the ultimate remainder beneficiaries?
(See also the discussion above about Unitrusts and the Power to Adjust.) Remember, as a Trustee you should have the power to hire an investment manager as an expense of the Trust. It is always a best practice to document your investment decisions and any discussions you have with the investment advisor you retain. You will be responsible for the selection and oversight of the investment advisor (unless you are a Directed Trustee) and will be responsible for hiring someone experienced in the field, and replacing them if they do not perform.
Uniform Prudent Investor Act (UPIA): A suggested law governing the investment of Trusts written by academics and proposed for adoption by each individual state as part of their body of Trust law. Most states have in fact adopted a version of UPIA. The Act addresses proper diversification of assets, appropriate delegation by the Trustee, and factors to be considered by the Trustee in constructing a portfolio appropriate for the Trust. In addition the Act allows the Trustee to view the portfolio as a whole, avoiding the older "Prudent Man" rule that held the Trustee responsible for each asset purchased in the Trust, and each asset would need to provide income for the current beneficiaries. Under the Prudent Investor, each asset need not produce income, but the overall portfolio should produce sufficient return for the current as well as the future beneficiaries. Note: the Uniform Principal and Income Act (UPAIA) is intended to work in harmony with UPIA so a percentage of the portfolio could be shared with the income beneficiaries. [See: Unitrusts, Power to Adjust]
Investment Committee or Investment Advisor: Once the exclusive responsibility of the Trustee, "modern" Trust laws have allowed the unbundling of many historic duties. The investment of Trust assets is one of the most common duties to unbundle. So if you are a Trustee for a Trust established under Delaware, South Dakota, or jurisdiction with similar Trust laws, you may find your investment duties assigned to an Investment Committee or Advisor.
WARNING: be sure to confirm with the attorney for the Trust the extent you are protected following the directions of the advisor or committee. Some state laws allow the Trustee to be directed on the investments but still leave some responsibility with the Trustee to ensure the investments do not defeat the purpose of the Trust. When you are directed you should prefer to have the protection of state laws (e.g. Delaware, South Dakota) that allow you to follow the directions with no liability to you should they underperform or otherwise deplete the portfolio.
Tax Letter or K-1: A Trustee is responsible for the preparation and filing of tax returns for the Trust.
- A Trust is a separate legal entity and therefore must file a federal return and state tax return (unless the Trust's legal residence or "situs" is in a no income tax state).
- There may be certain exceptions to this rule, such as "Grantor Trusts" where the Grantor is taxed on all the income and capital gains generated by the Trust, but even then the Trustee is usually responsible for preparing an informational return.
- The Trustee is also responsible for notifying the beneficiary of their tax obligations for any distributions made during the tax year.
- The notice to the beneficiary is usually in the form of a "tax letter" or "K-1 advice" and will detail, much like a 1099, any income or capital gains/losses reportable by the beneficiary. Unlike a 1099, the tax letter is not due at the end of January. Instead the Trustee has until April to provide the information.
Duties: The role of Trustee has always come with many "duties" imposed on the Trustee. (See more detailed discussion of individual duties later and in the member's section.) If a Trustee fails to adhere to any of these duties she can be sued for a "breech" of Trust, and face possible removal from the office of Trustee and surcharge for any damages to the Trust. Some examples of the duties follow.
- Duty to make the Trust productive: the Trustee must invest the assets of the Trust and generate a return for the beneficiaries.
- Duty of Loyalty: the Trustee must make every decision with the best interests of the Trust and the beneficiaries in mind. At no point should the Trustee benefit from any transaction for the Trust.
- Duty of Impartiality: the Trustee's actions must consider the interests of the remainder beneficiaries equally with the current beneficiaries.
As you can see from these examples, the Trustee must always act as a true fiduciary; making the best decisions, informed decisions, at all times considering the needs of the beneficiaries and the purpose of the Trust. (And don't forget to document your decisions.)
Executor or Personal Representative: Both are names given the fiduciary of an individual's estate, the one responsible for probating a Will. The role of Executor is similar to that of a Trustee in that he must preserve the assets of the Estate, pay any obligations, file tax returns, pay out debts, oversee the assets, and finally distribute the funds. The Executor must also make informed decisions in the best interests of the Estate and its beneficiaries.
The difference between the role of the Executor and that of the Trustee is:
- The Estate has a typical life cycle of three or four years while a Trust can last for generations or in perpetuity and
- because of the short life of an Estate the investment duties are usually focused on preserving the assets for distribution instead of investing for long term growth.
Rule Against Perpetuities: One of the oldest laws related to Trusts dating back hundreds of years to English common law.
- The rule was created by the King to limit the time wealth (land) could be held in Trust before it "vested" in an individual, meaning before an individual owned it outright.
- Why? Because the King could tax the land upon the death of an owner, and if it was held in Trust beyond the owner's life then the King could not levy his taxes.
- The original rule stated that a Trust must "vest" (be owned outright by and individual) no later than lives in being at the time of creation plus 21 years. Assuming you had a child born on the day you created the Trust, the maximum duration would be the life of that child or any other individuals, plus the time it took any late born grandchildren to reach majority, or a total of approximately 60 to 100 years.
- The Rule lasted for centuries and made it into the American law of Trusts, which in most states was based on the English law rules. It still exists in many states today, but has been modified by many to a straight period of years (e.g. 99years; 360 years), or eliminated in a number of other states (e.g. Delaware, South Dakota, Alaska) to provide for perpetual or "Dynasty" Trusts.
Uniform Trust Code (UTC): The UTC was crafted by academics and practitioners in the field of Trusts and Estates in an attempt to modernize and standardize the American law of Trusts. Historically each state developed through judicial practice (common law) and legislative enactment (statutory law) a body of Trust law based on English Trust law principals. (Louisiana being the exception as with their French roots much of their laws have roots in the Napolionic Code.) The UTC did not contemplate the interest in each state's attorney organization (state Bar Association) desire to cling to certain state specific views on the practice of Trust law. So while a number of states have adopted the UTC, most have done so only in part or with modifications particular to their home state. The result is a commonality but not a complete consistency among states that have adopted the UTC.
Sole Trustee: the single fiduciary responsible for the Trust. This individual (or institution) has complete legal ownership of the assets for the current and future beneficiaries. The Trustee is responsible for:
- Preserving the assets of the Trust and making them productive (growth to preserve purchasing power and income for the current beneficiaries).
- Paying taxes owed by the Trust.
- Distributing funds as directed or allowed by the Trust.
The Trustee is answerable to current and future beneficiaries for the preservation and productivity of the Trust's assets and the distributions paid out.
Co-Trustee: Possessing the same obligations and responsibility as the sole Trustee, but shared with one or more additional Trustees. Liability is usually shared for all actions taken on behalf of the Trust. Multiple Trustees usually must act by majority, but the Trust Agreement may require a unanimous vote on some or all decisions. If the Trustees become deadlocked on a decision, they usually must go to court to resolve the issues (i.e. ask the court for instructions).
Directed Trustee: Generally, this Trustee will have many of the usual duties of a Trustee (e.g. custody of assets; tax preparation) but will be directed on investments, distributions or both by the terms of the Trust. The Trust Agreement typically assigns the duties and responsibilities of investing the assets of the Trust to an individual or committee (often described as the Investment Advisor; Investment Committee), and the Trustee is only responsible for following the instructions. The same is true for any Trust that names a Distribution Advisor; the Trustee is only responsible for following the instructions of the individual named in the Trust Agreement with regard to payment of income or principal funds to the beneficiaries.
Trustee Tip: Directed Trusts are often viewed as relieving the Trustee of all fiduciary responsibility. This is incorrect. With the right state law governing and the necessary language in the Trust Agreement the Trustee should be relieved from any responsibility and liability with regard to the particular direction indicated: investments or distributions. But the Trustee will usually still have the fiduciary duties and responsibilities for all other aspects of the Trust. E.g. if a Trustee is directed on investments and the advisor asks the Trustee to make a distribution of assets, the Trustee will still have to consider if that is appropriate and in the best interests of the Trust and the beneficiaries.
Administrative Trustee: Very similar to a Directed Trustee, only here the Trust Agreement limits the Trustee's duties to a very specific and short list of duties designed to establish legal situs (e.g. custody of assets; providing tax information; sending statements) while the discretionary decisions are made by another Trustee or by advisors.
Trustee Tip: Directed and Administrative Trustees are most commonly used with "modern" trust states (e.g. Delaware, South Dakota, Alaska) having laws that allow a Trustee's duties to be unbundled without any residual liability to the Directed Trustee. If your Trust is not governed by the laws of one of these modern states you should consult with an attorney regarding any continuing oversight duties you may have.
Delegated Trustee: Unlike a Directed or Administrative Trustee, a Delegated (or delegating) Trustee starts off with full responsibility for the operation of the Trust, but then receives either beneficiary or court approval to delegate certain duties (typically the investment responsibility) to an individual or firm. Again, this option is more popular in modern Trust states where the liability protection is greater for the Trustee delegation the responsibility. (E.g. South Dakota has a good Delegated Trustee statute where all interested parties to the Trust must sign off agreeing to the delegation.)
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Understand the role of Trustee. MyTrustCo.com can help: read through the basic information provided here. Have a conversation with the drafting attorney and any family members involved with your appointment as Trustee.
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Understand the Trust Agreement and the specific duties that will be required:
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Investing the assets;
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Paying out funds
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Making discretionary decisions
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Keeping records.
Speak with the attorney who drafted the Trust if you have any questions.
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Meet with your Co-Trustee(s) and any other advisors named in the Trust (e.g. Protector, Investment Advisor, Distribution Advisor) if any.
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Discuss how you will work together, invest the Trust funds, distribute funds, prepare taxes, and any other duties required by the Trust.
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Develop a plan for responding to beneficiary requests for funds. Decide how often you will meet (in person or conference call) to review the status of the investments and the beneficiaries.
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Agree on who will be responsible for the initial and annual reviews of the Trust and who will keep the official records. [Note: MyTrustCo.com has sample checklists; initial and annual reviews, letters and recommendations to assist you in your duties.]
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Meet with the beneficiaries. Make sure they know how to reach you. As a Trustee you must know their needs now and if they change in the future. They should receive statements of the investment activity (typically the current beneficiaries, but in some states the "presumptive remainder beneficiaries" who would take if the Trust terminated today). A best practice would be to agree how often they would like to meet to discuss the Trust.
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Read through MyTrustCo.com to ensure you have a good understanding of your responsibilities and some of the best practices used by professional Trustees (banks, Trust Companies).
Trustee Checklists & Notes
First Year
- If you are also a Co-Trustee:
[See also the MyTrustCo.com Trustee checklist.]
- If you are also an Advisor or Protector
- Annually
NOTE: MyTrustCo.com provides this information for educational purposes only. The reader should consult with their own attorney and/or tax advisor.
- First Year
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- Obtain a copy of the Trust Agreement, and any related legal documents (e.g. Appointment of Trustee, Court Order, etc.). Review the Trust to be sure you understand its purpose, your rights and entitlements, the Trustee’s powers and limitations, and the event that will terminate the Trust.
- Obtain Trustee (and Advisors, e.g. Investment Advisor, Distribution Advisor, Protector, if any) contact information.
- Provide your contact information to the Trustee and Advisors.
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- Request initial meeting with the Trustee and Advisors to review:
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- The Trust
- Your entitlements
- How funds will be disbursed
- How the assets will be invested
- In addition to liquid investments, are their unique assets (e.g. boat, vacation home) held in the Trust that you may use? If so, how will access to those assets work?
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- Request to receive copies of the statements for the Trust.
- If you are currently entitled to fund from the Trust (whether mandatory payments or in the discretion of the Trustee) most state laws will require you receive statements (also referred to as an “accounting”) at least annually.
- If you are a future beneficiary, whose interest begins either at the death of a current beneficiary or at the termination of the Trust, you may not be automatically entitled to regular statements. However, most Trust laws will support your right to request, and to receive, information on the Trust, at least a copy of the Trust Agreement and a statement of assets. The one exception to this rule may be a “Silent Trust”, but in that case you should not even know of the Trust’s existence until the happening of a predetermined event such as the death of the Settlor, or you reaching a certain age.
- Note: as a current or future beneficiary, the Trustee should be required to “account” to you at a minimum when the Trust Terminates or when the Trustee resigns. The Trustee usually provides some form of summary of the financial activity (this could be a very high level summary of the starting and ending point of the assets or the full detail of all activity) and a “Receipt, Release and Indemnification Agreement” for you to sign which releases the Trustee from any potential liability for their actions.
- Remainder beneficiaries: traditionally you could receive information if you requested it from the Trustee under the theory that your future interest in the Trust would entitle you to go to court and compel the Trustee to account. While that still holds true, many states have adopted a version of the Uniform Principal and Income Act, which requires a Trustee to provide you with their contact information and at least an annual statement if you are a “qualified beneficiary”. This is typically defined as a remainder beneficiary who would receive assets or an interest in the Trust if it terminated today. It would not apply to remote contingent beneficiaries. A Silent Trust would be an exception to this rule.]
- Request a meeting.
Being entitled to benefits from a Trust is a wonderful gift providing financial benefits. The Trustee (and Advisors) should be there to enforce the terms of the Trust which includes seeing you receive all you are entitled to under the Trust. A face to face meeting would be preferred but a conference call would work if the parties are not near each other. This is your opportunity to have any questions answered, to establish some preferred practices (e.g. requesting funds, future meetings), and to get a good relationship established. -
- Confirm when and how funds will be disbursed to you.
- Provide instructions for delivery. If your right to funds is discretionary provide the Trustee with the information necessary for the Trustee to review the request.
- Confirm the contact information for the tax preparer who will send you the information needed for your tax return.
- It is recommended you keep copies of all correspondence, tax information and annual statements provided to you.
- Understand your role and rights. If you do not, keep asking for additional information until you do.
- Understand the benefits of the Trust, including asset protection for you and your family. (When the Trustee has discretion to pay funds, creditors should not be able to reach the assets.)
If you are also a Co-Trustee:
- You will be required to approve all decisions relating to the management and investment of the Trust (unless the Trust Agreement specifically carves out certain duties to a Co-Trustee or an Advisor).
- Keep copies of all your correspondence and notes from conversations, especially those where you exercised your authority as a Co-Trustee regarding investments, distributions, or some other aspect of the administration of the Trust. You may at some point be asked to prove you acted reasonably at the time and in the best interests of the beneficiaries and the Trust.
If you are also an Advisor or Protector:
- You will have specific duties outlined in the Trust Agreement. They may be contingent and generally inactive duties (e.g. a Trust Protector whose job is to appoint a new Trustee after a resignation); or they may be current and very active (e.g. an Investment Advisor, or a Distribution Advisor).
- In either case:
- Make sure you understand the full extent of your duties as an advisor, including the implications of not exercising your power or authority.
- Keep records of all correspondence and decisions, should you ever be called upon to prove you acted reasonably and prudently in the exercise of your power.
Annually:
- If your Trustee does not reach out to you, the beginning of the year is a good time to have a conversation about your current situation and your expected needs for the upcoming year. Do you anticipate any additional expenses? Do you expect your family situation to change (births)?
- Confirm receipt of any tax information you will need for your personal return.
- Address change: ensure the Trustee, Advisors and tax preparer have your new contact information.
- Ask to schedule meetings or conference calls as frequently as you are comfortable (e.g. monthly, quarterly). Information about the Trust is your right and the Trustee’s obligation.
- Keep copies of all documentation, including notes from meetings.
- Question anything you don’t understand. You have a right to information and to having all reasonable questions answered by the Trustee. If it comes to a conflict, a court should compel the Trustee to provide information about their administration of the Trust.
- Once you understand the Trust and your rights, you can make educated requests for funds or additional information.
- If you are also an Advisor: then at least annually you should review the investments and needs of all the beneficiaries with the Trustees and any other Advisors. Keep records of the discussion and decisions.
Termination of the Trust
- Confirm the termination event with the Trustee.
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- This could be the passing of one of the current beneficiaries (know as a “measuring life”); your attaining an age set forth in the Trust Agreement (e.g. 35 years old); or, less frequently, at the discretion of the Trustee.
- Note: in some Trusts there are partial terminations (also known as “step offs”) where a percentage of the Trust may be paid outright at certain ages (e.g. one third at age 30; one half of the balance at age 35; and the balance at age 40). The termination process for a full or partial termination is essentially the same.
- Confirm what happens next according to the Trust Agreement.
- Ask for an explanation of the necessary steps to complete the termination and an estimated time for completion. You should receive the following:
- Request for instructions on how to delivery your share of the Trust which may also include an opportunity for you to request to receive the net share of the current investments or the net proceed upon sale;
- A “Receipt, Release and Refunding Agreement” which relieves the Trustee from liability, acknowledges receipt of the assets and where you promise to refund any over distribution of assets
- Some form of final accounting.
- You will be asked to sign and return the Release Agreement before you receive your share of the Trust.
If you are given a Power to Appoint funds of the Trust outright or in further Trust, consider doing so effectively and generously so more generations of beneficiaries can share the “wealth”. First consult with you estate planning attorney and/or tax advisor to coordinate with your existing estate plan and judge the potential tax impact, if any.
First YearObtain, review and file copies of the Trust Agreement and any related legal documents
Gather contact information for any Co-Trustees, Advisors, attorney, tax accountant, and beneficiaries.
Provide your contact information to all interested parties.
Request copies of statements showing assets held and account activity.
Request an initial meeting or conference call to answer your questions and establish best way to work together when requesting information and funds.
Review assets of Trust, including any unique (e.g. real estate) assets you may use.
Confirm distribution of income, or if needed, request a discretionary payment.
Understand annual tax information process.
Understand your role.
If you are also a Co-Trustee:Record all discretionary decisions, and keep in the Trust file.
Set an Investment Objective appropriate for the Trust and all the beneficiaries.
Create a distribution schedule appropriate by the terms of the Trust and the beneficiaries needs.
Maintain a permanent record of all your decisions.
See also the MyTrustCo.com Trustee checklist.
If you are also an Advisor or Protector:Confirm your duties with the attorney and/or Trustees.
Review the administration of the Trust with the Trustees.
Exercise (or record an affirmative review and non exercise) your powers appropriately and record why you did so.
Maintain permanent records of all your decisions.
AnnuallyProvide any information (e.g. address) updates.
Schedule a review of the administration of the Trust with the Trustees and advisors.
Receive the Trust tax information before you file your personal taxes.
Question any information you don’t understand.
Review the Trust statements you receive.
First Year
- Obtain a copy of the Trust Agreement, and any related legal documents
(e.g. Appointment of Trustee, Court Order, etc.). Review the Trust to be sure you understand its purpose, your rights and entitlements, the Trustee's powers and limitations, and the event that will terminate the Trust. - Obtain Trustee (and Advisors, e.g. Investment Advisor, Distribution Advisor, Protector, if any) contact information.
- Provide your contact information to the Trustee and Advisors.
- Request initial meeting with the Trustee and Advisors to review:
- The Trust
- Your entitlements
- How funds will be disbursed
- How the assets will be invested
- In addition to liquid investments, are their unique assets (e.g. boat, vacation home) held in the Trust which you may use? If so, how will access to those assets work?
- Request to receive copies of the statements for the Trust.
- If you are currently entitled to fund from the Trust (whether mandatory payments or in the discretion of the Trustee) most state laws will require you receive statements (also referred to as an "accounting") at least annually.
- If you are a future beneficiary, whose interest begins either at the death of a current beneficiary or at the termination of the Trust, you may not be automatically entitled to regular statements. However, most Trust laws will support your right to request, and to receive, information on the Trust, at least a copy of the Trust Agreement and a statement of assets. The one exception to this rule may be a "Silent Trust", but in that case you should not even know of the Trust's existence until the happening of a predetermined event such as the death of the Settlor, or you reaching a certain age.
- Note: as a current or future beneficiary, the Trustee should be required to "account" to you at a minimum when the Trust Terminates or when the Trustee resigns. The Trustee usually provides some form of summary of the financial activity (this could be a very high level summary of the starting and ending point of the assets or the full detail of all activity) and a "Receipt, Release and Indemnification Agreement" for you to sign which releases the Trustee from any potential liability for their actions.
- Remainder beneficiaries: traditionally you could receive information if you requested it from the Trustee under the theory that your future interest in the Trust would entitle you to go to court and compel the Trustee to account. While that still holds true, many states have adopted a version of the Uniform Principal and Income Act which requires a Trustee to provide you with their contact information and at least an annual statement if you are a "qualified beneficiary". This is typically defined as a remainder beneficiary who would receive assets or an interest in the Trust if it terminated today. It would not apply to remote contingent beneficiaries. A Silent Trust would be an exception to this rule.
- Request a meeting.
Being entitled to benefits from a Trust is a wonderful gift providing financial benefits. The Trustee (and Advisors) should be there to enforce the terms of the Trust which includes seeing you receive all you are entitled to under the Trust. A face to face meeting would be preferred but a conference call would work if the parties are not near each other. This is your opportunity to have any questions answered, to establish some preferred practices (e.g. requesting funds, future meetings), and to get a good relationship established. - Confirm when and how funds will be disbursed to you.
- Provide instructions for delivery. If your right to funds is discretionary provide the Trustee with the information necessary for the Trustee to review the request.
- Confirm the contact information for the tax preparer who will send you the information needed for your tax return.
- It is recommended you keep copies of all correspondence, tax information and annual statements provided to you.
- Understand your role and rights. If you do not, keep asking for additional information until you do.
- Understand the benefits of the Trust, including asset protection for you and your family. (When the Trustee has discretion to pay funds, creditors should not be able to reach the assets.)
If you are also a Co-Trustee:
- You will be required to approve all decisions relating to the management and investment of the Trust (unless the Trust Agreement specifically carves out certain duties to a Co-Trustee or an Advisor).
- Keep copies of all your correspondence and notes from conversations, especially those where you exercised your authority as a Co-Trustee regarding investments, distributions, or some other aspect of the administration of the Trust. You may at some point be asked to prove you acted reasonably at the time and in the best interests of the beneficiaries and the Trust.
If you are also an Advisor or Protector:
- You will have specific duties outlined in the Trust Agreement. They may be contingent and generally inactive duties (e.g. a Trust Protector whose job is to appoint a new Trustee after a resignation); or they may be current and very active (e.g. an Investment Advisor, or a Distribution Advisor).
- In either case:
- Make sure you understand the full extent of your duties as an advisor, including the implications of not exercising your power or authority.
- Keep records of all correspondence and decisions, should you ever be called upon to prove you acted reasonably and prudently in the exercise of your power.
Annually:
- If your Trustee does not reach out to you, the beginning of the year is a good time to have a conversation about your current situation and your expected needs for the upcoming year. Do you anticipate any additional expenses? Do you expect your family situation to change (births)?
- Confirm receipt of any tax information you will need for your personal return.
- Address change: ensure the Trustee, Advisors and tax preparer have your new contact information.
- Ask to schedule meetings or conference calls as frequently as you are comfortable (e.g. monthly, quarterly). Information about the Trust is your right and the Trustee's obligation.
- Keep copies of all documentation, including notes from meetings.
- Question anything you don't understand. You have a right to information and to having all reasonable questions answered by the Trustee. If it comes to a conflict, a court should compel the Trustee to provide information about their administration of the Trust.
- Once you understand the Trust and your rights, you can make educated requests for funds or additional information.
- If you are also an Advisor: then at least annually you should review the investments and needs of all the beneficiaries with the Trustees and any other Advisors. Keep records of the discussion and decisions.
Termination of the Trust
- Confirm the termination event with the Trustee.
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- This could be the passing of one of the current beneficiaries (know as a "measuring life"); your attaining an age set forth in the Trust Agreement (e.g. 35 years old); or, less frequently, at the discretion of the Trustee.
- Note: in some Trusts there are partial terminations (also known as "step offs") where a percentage of the Trust may be paid outright at certain ages (e.g. one third at age 30; one half of the balance at age 35; and the balance at age 40). The termination process for a full or partial termination is essentially the same.
- Confirm what happens next according to the Trust Agreement. Ask for an explanation of the necessary steps to complete the termination and an estimated time for completion. You should receive the following:
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- Request for instructions on how to delivery your share of the Trust which may also include an opportunity for you to request to receive the net share of the current investments or the net proceed upon sale;
- A "Receipt, Release and Refunding Agreement" which relieves the Trustee from liability, acknowledges receipt of the assets and where you promise to refund any over distribution of assets
- Some form of final accounting.
- You will be asked to sign and return the Release Agreement before you receive your share of the Trust.
If you are given a Power to Appoint funds of the Trust outright or in further Trust, consider doing so effectively and generously so more generations of beneficiaries can share the "wealth". First consult with you estate planning attorney and/or tax advisor to coordinate with your existing estate plan and judge the potential tax impact, if any.