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What is a trustee expected to do?

Lucere Legal helps trustees understand their duties under the trust

The trustee of a trust is the person responsible for administering the trust. So, what exactly does that mean?

Initially, the trustee needs to study the trust document to see what provisions the trust contains. If they do not fully understand what the document says or are unsure about any part of it, they need to seek legal advice so they know how to handle their duties. They then accept the trusteeship and take control of the trust assets. Depending on the situation, they may need to meet with the grantor (the person who made the trust) or the beneficiaries (or their guardians) to determine income and support needs.

Once the initial trust actions are complete, the trustee has ongoing duties that must be handled.

Administrative duties:

The trustee transfers assets to trust ownership and establishes bookkeeping records for those assets. They have to inventory those assets and record the tax cost basis, along with acquisition dates. Valuable assets must be appraised and properly insured.

Bookkeeping duties:

The trustee collects income for the trust, records the details of that income. Interest on the trust principal must be accounted for and recorded, as it often gets handled differently than the principal. All disbursements get recorded, as well. The trustee also handles any sale or purchase of trust property, or any other change in asset portfolio.

Investment duties:

The trustee is responsible for making sure that the assets are invested wisely. The assets must meet the needs of the present and future beneficiaries, and the assets also have to be in safe, stable investment vehicles. The need to grow the trust to adequately provide for the beneficiaries is counter to the need for conservative handling. A trustee has a fiduciary duty to not unduly risk the assets of the trust, and investments that may be acceptable for an average individual are not acceptable for many trusts. If the trust holds business or real estate investments, the trustee must supervise those, as well.

Tax duties:

The trustee keeps the records of the taxable income and the adjusted cost basis of the assets. They file the trust income tax returns annually and provide the documentation needed by beneficiaries for their own tax returns.

Beneficiary duties:

The trustee distributes income to beneficiaries regularly and sends accountings for the income and principal of the trust. Many trusts give the trustee discretion in making distributions to beneficiaries or on their behalf, and in those cases the trustee must assess the situation to determine whether or not the distribution should be made. Many times trusts are established to benefit minor children, and their education, housing, medical, and day-to-day support needs must be paid out of the trust, as well. If the trust is a special needs trust established to benefit a disabled person, it is imperative that the trustee not make any disbursement that would jeopardize the beneficiary’s ability to receive means tested assistance.

Terminating the trust duties:

The trustee has to determine the proper time to terminate the trust according to the terms of the trust and must be timely about making the final distributions. Each remainder share for each beneficiary must be carefully calculated, and each share has to be accounted for and transferred to the beneficiary. The trustee provides accounting and tax information to the beneficiaries for their own taxes.

At all times and concerning all actions, a trustee must act in the best interest of the beneficiaries, must not engage in a conflict of interest, and must act with the highest ethical standards.

If you find yourself in the position of trustee and would like to find out more about your duties and obligations, call us at (612) 206-3701 or fill out our contact form today to set up a trust administration consultation appointment.

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The plain-English guide for Minnesota small business owners

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