Despite the common perception that trusts are only useful for the wealthiest of families, a trust is actually one of the most effective additions you can make to your estate plan. Today, average people and families just like yours regularly utilize these estate planning tools. Part of that newfound popularity is the result of how trusts have changed over time and become more specialized in nature – so specialized in fact that different types of trusts exist to accomplish almost any estate planning objective you might have. Still, many people know little about trusts or how they are administered when the grantor passes away. If you’ve been named as a loved one’s trustee, knowing these seven things can help you to better understand trust administration and your role in that process.
What is Trust Administration?
Trust administration is the process by which the trust is managed by the designated trustee. Whenever you see the words “trust administration” you should recognize it as referring to all of the duties placed upon you as the trustee appointed by the grantor of the estate. These duties take many forms, but basically encompass two basic responsibilities: to ensure that the terms of the trust are faithfully followed as outlined by the grantor and to manage the maintenance, investment, and distribution of all assets in a way that honors your fiduciary duty to the beneficiaries of the trust.
About that Fiduciary Duty…
Your fiduciary duty as a trustee obligates you to put the interests of the trust’s beneficiaries above your own – even in instances where you yourself might be both trustee and beneficiary. That means that every decision you make with respect to trust administration must be made with those beneficiaries’ best interests in mind. Meanwhile, you cannot act in ways that cause you to profit from the trust, unless the grantor had expressly outlined circumstances in which that would be permissible.
Your Responsibility Extends to All Beneficiaries
Certain trusts may have provisions designed to benefit current beneficiaries now and other beneficiaries in the future. Examples include charitable remainder trusts that might be designed to provide benefits for certain charitable endeavors for a time before distributing the trust’s remaining assets at a future date. Sometimes that type of arrangement can result in confusion over which beneficiaries should receive priority. Your duty is to take the interests of all of those beneficiaries into consideration when you make decisions about how to act.
Avoiding Conflicts of Interest
One of the most difficult challenges many trustees confront is avoiding conflicts of interest. This is especially problematic when you find yourself in the position of being a trustee who is also a named beneficiary of the trust. To avoid that, you should strive to keep your own financial activities apart from those of the trust. Do not act to purchase assets from the trust unless you have received express permission to do so. At the same time, you should not sell assets to the trust either, since this could be viewed as enriching yourself.
Adhere to the Prudent Investor Standard
You should familiarize yourself with Michigan’s prudent investor rule to ensure that you understand the standard of care you must exercise in all investment decisions related to the trust. This rule lays out a standard that basically requires you to exercise the same level of prudence when investing the trust’s assets that you would use when investing your own wealth. When combined with your fiduciary duty, this standard requires that you make investment decisions that take into consideration the needs of the trust and its beneficiaries. Overly risky investments should be shunned in favor of sound growth strategies that can preserve the trust’s assets and grow them over time.
Trusts Are Independent Entities
Trusts are more than just a collection of assets. They are, in a legal sense, independent entities. That means that they can be in possession of property, can invest their asset wealth, and can even purchase or sell assets when appropriate. They can also incur debt, and must pay taxes. Trust administration requires that these taxes be calculated and paid at the appropriate times – and that task falls to the trustee.
You Could Have Personal Liability if Mistakes Are Made
Never assume that you cannot be held personally liable for errors in trust administration. Many trustees operate with the belief that they are free from liability as long as they do not engage in activities that are ethically questionable or criminal in nature. That is not always the case, however. The fact is that your actions are personal when you negligently cause the trust to incur debt, or damage its value through either mistaken actions or simple inaction. Always consider how your actions could create personal liability for you.
If those seven important facts about trust administration leave you with the impression that your job as a trustee is a major responsibility, then you definitely have the right impression! The proper administration of any estate is serious business, and being a trustee places you in a position that can impact many other people’s lives. Many of the beneficiaries of the trust may be relying on its assets as a major source of their income. The trust itself deserves to be properly administered so that the trustor’s goals can be realized over the long-term. That’s a heavy burden for anyone to bear, but your loved one obviously trusted you to bear it.
The good news, though, is that you do not have to shoulder that burden alone. At Biddinger, Bitzer & Estelle, PLLC, our legal team understands the awesome responsibility with which you have been entrusted, and we also understand how daunting the task ahead of you must seem. We have the estate planning experience and expertise you need to help you navigate the trust administration process and fulfill your trustee obligations in accordance with the law and the terms of the trust. To find out how we can assist you in your role as a trustee while protecting your interests at the same time, contact us online or call us at (989) 872-5601 today.