If you have been named a trustee, a great amount of responsibility has been placed upon your shoulders. Being named as a trustee means that the person who owns the trust, often known as the grantor or trustor, has placed the future administration of his or her assets (property, finances, etc.) directly in your hands. Once you are formally named the trustee, you are legally responsible for ensuring that the trust is properly administered to beneficiaries, the party or parties named by the trustor to receive the assets contained within the trust.
If you have been named a trustee, take some time to read this brief outline of your duties.*
* Because the laws governing trusts can vary from state to state, it’s best to consult with an attorney on the laws in your state.
Once you assume control of the trust, you do not have free reign to invest or administer assets as you please. A trust is similar to a will in that there are specific guidelines that have been created by the trustor and their attorney. As a trustee, you are bound by the instructions written in the trust, which will detail how and when you can invest or distribute assets. Take extra care to abide by these guidelines to avoid legal action being filed against you by the beneficiaries.
Your Fiduciary Responsibility
Every trustee is bound by a “Fiduciary Responsibility” to both current and future beneficiaries. This means that you must always act in good faith. Placing money in unsafe or high-risk investments is a good example of what could be a violation of your fiduciary responsibility. You must always act in the best interests of the beneficiaries, which means making investments that are considered reasonably safe.
You also have the responsibility to make distributions to beneficiaries based on the terms of the trust. These can include anything from day-to-day expenditures to larger expenditures like college tuition and purchasing a house. It is your responsibility to understand your role as Trustee and manage the distributions appropriately.
Taxes and Accounting
It is your responsibility to keep complete financial records of the trust as well as any investments and expenditures. Depending on the guidelines within your trust and your state’s laws, you may be responsible for:
- Providing beneficiaries with an annual report on the trust.
- Filing an annual tax return.
Your Rights as a Trustee
Trustees generally have certain rights when they assume control over a trust. Each trust is unique so understanding what control or authority you have is important. Keeping good records is very important as a trustee, hiring accountants, financial advisors and lawyers to help manage the trust or help with record keeping is a good idea.
Getting a Surety Bond
It’s generally required for trustees to acquire a surety bond for managing the trust assets. This bond ensures that you will perform your duties and protects the trust from mismanagement. They are similar to other fiduciary bonds such as representative payee, conservatorship, guardianship, etc., and can be acquired by contacting a surety agency. To learn more about trustee surety bonds, contact The Patrick J. Thomas Agency today.
Disclaimer: this is for informational purposes only and is not intended to be legal advice. If you need legal counsel, please contact an attorney directly.