By Neil L. Kimball
The following is a list of some of the typical tasks that a trustee or successor trustee will need to perform. The list is not necessarily in chronological order and is not intended to cover every task that may arise since each trust is different.
- Review the trust agreement carefully since it specifies duties in addition to those imposed by law. You should seek the assistance of an experienced probate/estate planning attorney.
- If you agree to act as trustee, you should sign a document referred to as an "Acceptance of Trust" and send a copy of the document and a copy of the trust to the beneficiaries to let them know you will be acting as trustee. The letter to the beneficiaries should conform to certain state law requirements (seek help from your attorney).
- If you are a successor trustee while the grantor of the trust is still living, you should determine if there are assets titled in the grantor's name alone that should be transferred to the name of the trust so that they do not have to go through probate proceedings at the grantor's death. If the grantor is incapacitated, his or her agent under a durable power of attorney may have to transfer the asset to the trust. In many cases, grantors appoint the same persons as both agent under the durable power of attorney and as successor trustee.
- If you are taking over as a trustee following the death of the grantor of the trust, you should consult with the trust attorney regarding publishing a notice in a local paper to notify creditors of their right to file a claim against the trust (for money owed to the creditor by the deceased grantor).
- You should organize a good record-keeping system for paperwork regarding bills, income, taxes, investments, insurance, etc.
- You should secure all trust assets (change locks on properties, store tangible personal property, etc.).
- You should make a list of all debts and creditors of the grantor, so that debts can be properly paid.
- Make sure all insurance coverages are in place and note due dates for premium payments.
- Forward all mail to your address.
- Meet with accountant to:
Assemble a team of advisors (accountant, attorney, insurance agent and financial advisor).
Prepare a list of trust assets and the fair market value and tax basis of each (this inventory of assets is a starting point for the preparation of the accounting to the beneficiaries).
Obtain information on beneficiaries (investment risk tolerance, financial needs, cash flow needs, anticipated expenses, and their other sources of support if they are to be taken into account in making discretionary distributions of income and/or principal from the trust).
Meet with a financial advisor to determine how to prudently invest the trust assets taking into account the factors in #13 above (consider risk, diversification, and volatility of investments).
Establish bank accounts (checking and investment) for the trust (put in name of trust and under the trust�s federal tax identification number obtained by the accountant).
Keep a log of all tasks and time involved, so that you can document the work you have done as trustee to justify any trustee fees you may charge to the trust.
Regularly communicate with the trust beneficiaries. Meet periodically with the financial advisor to make adjustments to investments to meet the changing needs of the beneficiaries. When changes are made to the investments, disclose this to beneficiaries and the reasons why � this is not a legal requirement but it can help if the beneficiaries later argue that improper investment decisions were made by you. It is best to have an investment strategy based on the factors described above and communicate it so that beneficiaries understand the basis for your decisions. If they have specific objections, it is usually better to know as soon as possible.
Try to avoid conflicts of interest. For example, if you are both trustee and one of the beneficiaries, avoid transactions that benefit you more than other beneficiaries. If it is in the best interest of all beneficiaries for you to buy an asset from the trust, for example, obtain an appraisal of the asset and seek Probate Court approval of the transaction in advance (Court approval is a legal requirement unless the trust agreement specifically authorizes the transaction).
At least annually, you will be required to prepare an accounting for the trust. The first accounting starts with the inventory of trust assets when you took over administration of the trust, adds to the inventory income and other receipts during the accounting period, and shows expenses paid and distributions made during the accounting period. The accounting ends with a listing of the assets on hand at the end of the accounting period. The assets on hand at the end of the previous accounting period is the starting point for the next annual accounting. The accounting typically shows among the expenses any trustee and professional fees incurred by the trust during the accounting period. The accounting is then provided to the beneficiaries who can either accept or object to the accounting (see the provisions of the trust regarding the procedure). If there is a dispute over the accounting or any other trust administration matter that cannot be resolved, any interested party may ask the Probate Court to resolve the matter.
- Discuss grantor's tax returns (or final personal returns if deceased);
- Obtain a tax identification number for the trust (to use for investments, accounts, and tax returns);
- Discuss preparation of tax returns for the trust (fiduciary income tax returns and estate tax returns if applicable); and
- Discuss preparation of accountings for the trust each year (to be provided to beneficiaries).
As you can see, the job of trustee carries a lot of responsibility and should not be entered into lightly. The terms of the trust, the nature of the trust assets, the personalities and needs of the beneficiaries, and your available time to handle these matters should all be considered carefully before agreeing to serve as trustee. In some cases, serving as a trustee can be like taking on another job. Having competent professionals assist you can help make the job easier and minimize your risk, but ultimately you are the one responsible for making sure the terms of the trust are carried out properly.