As a professional Estate Planning practitioner I have the responsibility to help our clients to understand the duties and responsibilities of a trustee. Even though they are trustee for themselves they should consider performing their function as trustee in accordance with established practice. Some may think that these duties are complex and burdensome, but they can be interesting and much less of a burden than they appear to be. The major duties are outlined as follows:

• Fiduciary Responsibility

  A trustee has the duty to use care and caution to protect the assets of the trust. Trustees must hire professionals when needed to see that the trust is administered properly. They should seek legal counsel to make sure that actions taken are in keeping with the terms of the trust.
  As trustee, you must not delegate your fiduciary authority to another person or persons, except, to a successor trustee as the document allows. The document dictates what authority and powers you have as trustee. Any power you have agreed to accept as trustee cannot be delegated to someone else.

   

• Initial Review

  The first step is to become familiar with the document and what your responsibilities are. You should examine and study the terms of the trust with care. It is impossible for anyone to prudently act in accordance with the terms of an agreement without reading and understanding it.
  You must formally accept your duties as trustee by signing the document, or the acceptance form provided by the attorney. Your acceptance of the duties as outlined is binding, and is the basis for your authority to act as trustee.

   

• Administrative Duties

  Trustees prepare, execute, and deliver documents to transfer the assets to trust ownership, and set up trust bookkeeping records.
  You will make an inventory or listing of trust assets. For each asset you will record the tax cost basis or adjusted basis. You will also record acquisition and sale dates. As trustee, you will review the investment quality of trust assets and the adequacy of insurance converge on all assets.

   

• Bookkeeping and Accounting

  Trustees collect dividends and interest and post them to the trust bookkeeping system. You will collect and reinvest the proceeds of matured or called bonds and account for them. All income must be recorded along with principal receipts and disbursements and checking and other accounts kept in balance.
  Capital changes in all assets should be recorded appropriately. All dividend reinvestment proceeds will need to be posted to the appropriate asset account and any increase or decrease in the cost basis recorded.

   

• Oversee Investments

  With the help of investment professionals, trustees establish investment strategies and asset allocation models to provide for the needs of current and future beneficiaries. As trustee, you will invest and reinvest funds in a timely manner and in quality investment products. Trust investments should be reviewed on a regular basis to make sure they are appropriate for the needs of the trust. As trustee, you will monitor the quality and performance of all securities in the account.
  You will supervise and manage all real estate and business interests in the trust.

   

• Tax Supervision

  Trustees should keep records of taxable income and adjust cost basis as needed when assets are bought or sold.
  Once the trust becomes irrevocable, you or your successor must file the fiduciary tax return for the trust on an annual basis. Beneficiaries must receive tax information each year in a timely manner so they can accurately prepare and file their personal returns. Timing of investment transactions must be considered, whether buying or selling, to minimize the tax impact.
  Trustees must prepare any Federal Estate Tax and Gift Tax returns, or oversee their preparation. These returns should be filed in a timely manner with the Internal Revenue Service. You will normally do this with the help of the attorney and CPA. Using the services of a competent accounting professional is a necessity for trustees.

   

• Beneficiary Services

  As trustee, you will send income and/or principal distributions to beneficiaries as required by the trust document. You also provide statements of the status of the trust, including income and principal receipts and disbursements, and value of investments, including investment performance, to beneficiaries.
  You will exercise trustee's discretion granted in the trust to make payments to beneficiaries as the document directs. Many times a trust will give the trustee the discretion to make distributions for such things as education, medical emergencies, support, maintenance, and other specific reasons. The trustee must be accountable for their actions in making all distributions to beneficiaries.
  You will need to provide for liquidity to make any distribution required by the trust.

   

• Distributions

  As trustee, you will need to determine the timing of any distributions from the trust. You will see that all distributions, partial or final, are in accordance with the terms of the trust. In doing so, you should make sure that each beneficiaries's share is calculated properly, that the distribution itself is in a timely manner, and in the form (either cash or in kind) outlined in the document.
  You should prepare a final tax return for the trust and a final accounting to each beneficiary, outlining how their distributive share was calculated and arrived at.
  You must transfer the assets into the beneficiaries names and get receipts from each one for the assets received. You can then terminate all checking accounts and keep a record of the final transactions.

   

• Special duties of Irrevocable Life Insurance trustees

  Trustees of irrevocable life insurance trusts have some special responsibilities that should be considered. These include but are not limited to:

  • Applying for and getting a Tax ID number from the IRS. Using the IRS forms fax number at 1-801-620-7115.
  • Get the annual deposit in from the grantor 45-60 days prior to the premium coming due.
  • Sending out beneficiary notices by certified mail with return receipt and allowing 10-14 days after lapse of withdrawal power to pay premiums.
  • Paying the premium after the lapse of the power to withdraw.
  • Keep and file copies of withdrawal letters, premium notices, mail receipts, checking account statements etc.

Most of these duties of a trustee are things that clients will do each day as a matter of course and not really burdensome. These problems stem from a lack of knowledge and understanding of trustee duties, lack of time to do all that is necessary, or an unwillingness to change from old habits. We have the responsibility to educate and assist our clients to see that they follow through on the estate plan set up for their benefit. Helping them achieve their ultimate goals gives us lifelong satisfaction as estate planning professionals.

© 1999, David D. Halladay
Certified Trust and Financial Advisor
Trustconsult
1338 North 1270 East
American Fork, Utah 84003
Phone: 888-560-4343
E-mail: service@ilithelp.com
Internet: ILITHELP.com