Assisting Trustees in Meeting Legal and Compliance Trust Requirements
For many of our clients, establishing a revocable living trust is a relatively straightforward process that allows them to retain control of their assets during life, while ensuring the assets titled in the trust avoid a probate process after death. However, when a client (the trust “grantor”) no longer can serve as a trustee of the revocable trust, either due to incapacity or death, the trust administration picture becomes more complicated. When the trust becomes irrevocable, a separate trustee who typically is named in the trust document upon signing, steps in to manage trust assets and follow the grantor’s instructions as directed in the trust. When a person accepts the role of trustee or successor trustee, the individual (or institution) is serving as a fiduciary, meaning the trustee must follow the terms of the trust and potentially may be liable if certain procedures or directions are not meticulously followed. We work with trustees in these times of transition, offering advice concerning their legal responsibilities and educating them on state-specific laws regarding trust administration.
Facts about Trust AdministrationWhat is a Living Trust? A revocable living trust is a type of trust you (as the grantor) create during your lifetime. It is a legal way of transferring ownership and directing the disposition of your assets. Because assets are titled in the trust during your lifetime, or flow into the trust at death through beneficiary designations, the trust ensures property avoids a court supervised, and often lengthy probate process. With a revocable trust, you (as a grantor) retain control of the assets, and are able to amend or change the design of the trust at any time while you have capacity to understand the document. In many circumstances, a grantor also acts as the initial trustee. What is an Irrevocable Trust? An irrevocable trust may be an appropriate planning tool under several circumstances. It differs from a revocable trust in one key aspect – the grantor does not retain the authority to change the terms of the trust. Moreover, while assets under a revocable trust remain under the control of the grantor, in an irrevocable trust, control often must be vested in a separate trustee (or a co-trustee must serve to control certain decisions) in order to accomplish desired results, such as creditor protection, estate tax planning or Medicaid eligibility. This means any changes to the irrevocable trust after its creation, including who serves as trustee, requires a specific procedure authorized under the trust terms or under state law, which may mean prior approval of others, including the beneficiaries. Because irrevocable trusts serve a variety of planning purposes, the design of the trust itself must be thoroughly considered in advance, and the specific terms must be carefully tailored to accomplish the specific objective. Once the trust is created, it also must be strictly administered to avoid unintended consequences. What does a trustee do? The trustee’s role is that of a fiduciary, acting in the best interests of the trust and those individuals named as beneficiaries in the trust. With a revocable trust, the grantor generally would serve as trustee until the grantor loses mental capacity or dies. If the grantor is not serving as trustee and still has mental capacity, the trustee works closely with the grantor to undertake the various legal and administrative requirements of the trust. It is wise to name a successor trustee in the trust document, meaning someone to assume the fiduciary role when the needed. At this point the job of the trustee is largely focused on appropriately transferring and managing assets according to the grantor’s expressed directions in the trust. What are common challenges for trustees? It is important for trustees and successor trustees fully to understand their responsibilities as well as specific legal requirements governing trust administration. Additionally, trustees must recognize their fiduciary responsibility owed to the trust beneficiaries. In the wake of the death or incapacity of the trust grantor, the successor trustee must be prepared to quickly and knowledgeably assume their duties.
Ways we can assist in trust administration:
- Assist clients in identifying and naming an appropriate trustee and successor trustee at the outset, and helping clients fill a vacancy in the trusteeship if no one is able to serve.
- Review specific provisions of the trust which may need to be analyzed in order to accomplish the grantor’s wishes concerning asset management.
- Work with trustees in understanding their role and responsibilities.
- Assist trustees and families during times of transition by educating them on applicable laws regarding trust administration and disposition of assets (preparing and sending Trustee notices and annual accountings to beneficiaries, advising on making distributions, obtaining receipts, etc.).
- In the case of a special needs trust, assist trustees in understanding eligibility rules for public benefits to ensure assets are administered to enhance the life options of a person with disabilities without impairing financial eligibility for benefits like Supplemental Security Income (SSI) and Medicaid.