Trustee is a person or an entity that is responsible for taking care of the assets within a trust on behalf of and for the primary benefit of the beneficiaries. The corpus (assets) of the trust do not belong to the trustee, and in fact, trustee can’t use any assets of the trust in any way to directly benefit the trustee. Instead, trustee has a fiduciary responsibility to manage the trust in the best possible way for the beneficiaries. Should they fail in this responsibility, they could be held responsible for any losses, mismanagement and/or self-benefit.
A job of trustee is tricky and required counsel of an experienced attorney. As compensation for such difficult job, trustee may be entitled to compensation in the form of commissions.
Responsibilities of Trustee
If you have been named trustee, you will have a variety of responsibilities that you must tend to. Note that you cannot use ignorance as defense if you are sued for mismanagement of the assets of the trust.
If you a successor trustee, when you come on board, you have the exact same responsibilities and duties as the initial trustee and will be held accountable if you do not handle the trust in a responsible fashion. If you find out that your predecessor mismanaged the trust, it is your responsibility to bring it to the attention of the beneficiaries and your co-trustees, if any.
If acting as trustee is not something that you are interested in doing or you cannot continue to do so because of personal circumstances, you may resign as trustee. If you have been acting as trustee for a short period of time, it is prudent to account to the beneficiaries for your acts and proceedings as trustee before you resign. This will ensure that you are released of personal liability with respect to your trusteeship period.
Some of the things that you will have to do when you are appointed as trustee:
Manage Trust – analyze the trust agreement. Determine what the trust says and requires of you as trustee. The trust agreement will most often refer to such concepts are “income and principal”. Note that income and principal for the trust is NOT a tax concept but a State fiduciary law concept. It may be confusing, but we are here to help you figure out how to run the trust and what it requires. Determine what the trust requires in terms of distributions and preservation of assets. The grantor may have been very general or very specific in his or her requirements for distributions and it will be up to you to determine how to act on those directions and requirements. We are here to help with this difficult task.
Assessing Value – The next step is to assess the current value of the assets held in the trust (or, if you are a successor trustee, the “turn-over” value of the assets handled by the previous trustee). This is important for tracking purposes and also for you to understand administration needs. If you hold art, you will be required to take certain steps that you will not have to do if you hold financial accounts. Carefully measure what came into the trust at its creation. If you think that something is missing, try tracking it down and talk to your predecessors (previous trustees or executors of the decedent’s estate or the grantor, if he or she is still alive).
Paying Taxes – The trust is responsible for any federal or state taxes if it generates income and the trustee is the one to make the tax determination and to make the actual payments. The payments would come out of the trust itself, not out of the trustee’s personal account.
Determine what, if any taxes were paid in the past- hire an accountant who knows and understand fiduciary income taxes (Form 1041) and determine what, if any, back taxes are owed by the trust.
Managing Assets – If there are tangible assets within the trust, the trustee will need to manage them. For example, if there is a home in the trust, the trustee will need to make sure that the house is maintained and kept in well-repair, insured and rented to produce income for the beneficiaries. If there is art in the trust, trustees will be responsible for insuring art, selling it or exhibiting it.
Following the trust agreement – the trust agreement will specify when, why and what, if anything, must come out of the trust during its existence. For example, the trust may be fully discretionary with respect to income and principal distributions to the beneficiaries or may dictate mandatory specific distributions at certain times to certain beneficiaries in specified proportions or amounts. Trustee must follow the trust! If the trust is discretionary, trustee must be impartial and must review and evaluate each beneficiary’s situation carefully before making a determination to distribute or not. Some trusts last a lifetime and others only a few years, depending on the creator’s purposes and the assets.
As long as you are acting as trustee, you must act with prudence and fairness. Since you are taking care of the assets for the beneficiary, you are responsible for doing the best you can to avoid waste of assets, and you must grow assets. Many people worry that they could get in trouble should they make a bad decision, but that is not the case. As long as there was no ill intent, and it was a reasonable decision at the time that it was made, there won’t be any penalties. Trustees do, however, typically manage assets conservatively to ensure assets will be there for the beneficiaries when the time comes.
Effective Trust Management
If you need an experienced group to manage a trust, we have the experience needed to take care of everything. In addition, we can help you with your trustee responsibilities should you not know how to do mandatory aspects of the job. To learn more about what we can do for you, please give us a call at 212-596-7039 today. Thank you for taking the time to learn more about trust administration. We look forward to speaking with you soon.
Our policy is to communicate clearly, concisely, and on a timely basis. To be responsive to clients. If we can’t take your call immediately, you can expect that a telephone message left in the morning.