Often, grantees are inclined to choose their children or another individual who is close to them when selecting a trustee. However, this article aims to inform the reader of the functions and duties of a trustee so that you can select an individual, or even a professional trustee, who is able to carry out these duties in a way that will act in the best interests of your intended beneficiaries. Naming a professional trustee and dividing the functions of trusteeship among different persons has become increasingly common.
A trust is an alternative to a will in estate planning. In order to create a trust, there are four requirements: intent on the part of the grantor to create a trust, ascertainable beneficiaries of the trust, specific property that can be held in trust, and if the property includes real property, the trust may be created in writing. A grantor then designates a trustee which is the person who agrees to hold the assets in trust and distribute of them accordingly.
A trustee owes a duty of loyalty to all of the donor’s intended beneficiaries. A trustee also owes a duty of prudence in carrying out his/her functions in making distributions to beneficiaries, investing trust funds, maintaining custody of the funds, and administratively managing the funds. A trustee must also act impartially in investing, managing, and distributing the trust property, giving due regard to each beneficiary’s respective interests. Finally, a trustee must keep all beneficiaries informed and provide them with a periodic accounting of the trust property.
There are four functions of trusteeship. First, the trustee takes custody of the trust property and properly safeguards it. The trustee collects and must protect the trust property, earmark the trust property, and has a duty not to co-mingle the trust property or assets with their own property or assets. Second, the trustee has an administrative function that consists of keeping adequate records of administration and making tax and other required filings; as well as providing an accounting to the beneficiaries. The trustee also has a duty to bring and defend claims on behalf of the trust. Third, the trustee has an investment function, to review the trust assets and make and implement a prudent investment program as part of an overall strategy reasonably suited to the purpose of the trust and the circumstances of the beneficiaries. This is the most important function to consider when determining who you will designate as trustee. The trustee must not only invest as a prudent person would, but as a prudent investor – they likely would invest the assets in a balanced portfolio, in order to keep up with inflation safely and make the assets grow in a reasonable way. A prudent investor must have their eye toward market conditions and look to the end result when making investment decisions. Finally, the trustee has a distribution function. Trustees make disbursements of the income or principal from the trust to its beneficiaries in accordance with the terms of the trust. If you designate these distributions to be discretionary, the trustee must exercise discretion prudently, in good faith, and in accordance with the circumstances of the beneficiaries and the terms of the trust.
Estate planning can be complicated and complex, often times requiring the guidance of an experienced attorney. The staff and attorneys at Thooft Law offer estate planning services and in depth analysis of clients current and future situations. Please contact Derek at [email protected] or directly by phone at 651-485-1254 to discuss your options – initial consultations are free of charge.