What You Need to Know If Asked to Serve as a Trustee
Ask Questions Before Serving as a Trustee

What You Need to Know If Asked to Serve as a Trustee

Being asked to be a trustee is a question that deserves serious consideration. First, because there are so many different types of trustees, the answers to the questions posed above will vary greatly, says The Mercury in a recent article that asks “Should you be a trustee?”

At the very simplest level, a trustee is appointed when a trust is established, often for a person and their spouse. The person’s assets are retitled to be owned by the trust. The couple continues to file the same tax returns, using the same Social Security number and the income from the trust assets are treated as the couples’ income.

When one of the couple dies, if the couple lives in a state with an inheritance tax, they are taxed as if they were inherited directly by the person. The rate of taxes depends on the relationship to the person who died. Therefore, trustee duties are pretty easy in this instance. Instead of wearing your “Mrs. Jones” hat, you are wearing your “Mrs. Jones, Trustee of the Joan Jones Trust” hat.

In most cases, the trust document names one successor trustee. That person is typically one of the couple’s adult children, although it could also be a bank or a financial institution. The successor trustee is responsible for managing the trust assets, dealing with banks, financial institutions and others on behalf of the person, if they became disabled or incapacitated.

After the person dies, the successor trustee would continue in their role, and details of their responsibilities should be outlined clearly in the trust document.

Another type of trust is a simple trust that is part of a will, called a testamentary trust. It is often created to provide support for a minor beneficiary who might inherit assets. Usually parents or the surviving parent of a minor beneficiary or an executor is named as a trustee for the child’s funds, until the child reaches a certain age.

Regardless of what kind of trustee a person is, they have a fiduciary responsibility, meaning that they are held to a high standard of accountability and must always put the needs of the trust before their own. The trustee is required to maintain accurate documents and cannot take funds for their own use. A trustee can be paid a reasonable fee, unless the trust documents have other directions.

In most cases, the trust document gives the trustee the right to retain others, such as attorneys, accountants, or financial advisors to help fulfill their responsibilities. Sometimes that’s as simple as setting up a bank account, but other times it is more complicated.

When do you stop being a trustee? It is usually when the trust says the trust is to end, which is sometimes at a certain date, when the beneficiaries reach a certain age, or when the trust fund is empty. A court order can be made to the Court to either terminate or modify the trust.

For more complicated trusts, the help of an estate planning attorney, also known as a trust and estate attorney, will be needed to protect the trust and the beneficiaries. There are Special Needs Trusts (SNTs), created for an individual with special needs, who often receives help from government programs like Social Security Disability Insurance (SSDI) or Medicaid. There are also different kinds of SNTs, depending on the needs of the individual and their family.

There are also: irrevocable income only trusts, intentionally defective grantor trusts, non-grantor trusts, qualified personal residence trusts and many, many others.

Your estate planning attorney will be able to explain what kind of a trust would be optimal for your family, while you are living and after you have passed.

Learn here all about revocable living trusts.

Reference: The Mercury (July 17, 2019) “Should you be a trustee?”

Does Anyone Really Need a Trust?

The simplest definition of a trust is a three-party fiduciary relationship between the person who created the trust and the fiduciary for the benefit of a third party. The person who created the trust is known as the “Settlor” or “Trustor.” The fiduciary, known as the “Trustee,” is the person or organization with the authority to handle the asset(s). The trustee owes the duty of good faith and trust to the third party, known as the “Beneficiary.”

That is accurately described by the Pittsburgh Post-Gazette in the article titled “Do I need a trust?”

Trusts are created by the preparation of a trust document by an estate planning attorney. The trust can be made to take effect while the Trustor is alive — referred to as inter vivos or after the person’s death — testamentary.

The document can be irrevocable, meaning it can never be changed, or revocable, which means it can change from one type of trust to another, under certain circumstances.

Whether you even need a trust, has nothing to do with your level of assets. People work with estate planning attorneys to create trusts for many different reasons. Here are a few:

  • Consolidating assets during lifetime and for ease of management upon disability or death.
  • Avoiding probate so assets can be transferred with privacy.
  • Protecting a beneficiary with cognitive or physical disabilities.
  • Setting forth the rules of use for a jointly shared asset, like a family vacation home.
  • Tax planning reasons, especially when IRAs valued at more than $250,000 are being transferred to the next generation.
  • Planning for death, disability, divorce or bankruptcy.

There is considerable misinformation about trusts and how they are used. Let’s debunk a few myths:

An irrevocable trust means I can’t ever change anything. Ever. Even with an irrevocable trust, the settlor typically reserves options to control trust assets. It depends upon how the trust is prepared. That may include, depending upon the state, the right to receive distributions of principal and income, the right to distribute money from the trust to third parties at any time and the right to buy and sell real estate owned by the trust, among others. Depending upon where you live, you may be able to “decant” a trust into another trust. Ask your estate planning attorney, if this is an option.

I don’t have enough assets to need a trust. This is not necessarily so. Many of today’s retirees have six figure retirement accounts, while their parents and grandparents didn’t usually have that much saved. They had pensions, which were controlled by their employers. Today’s worker owns more assets with complex tax issues.

You don’t have to be a descendent of an ancient Roman family to need a trust. You must just have enough factors that makes it worthwhile doing. Talk with your estate planning attorney to find out if you need a trust. While you’re at it, make sure your estate plan is up to date. If you don’t have an estate plan, there’s no time like the present to tackle this necessary personal responsibility.

Reference: Pittsburgh Post-Gazette (Jan. 28, 2019) “Do I need a trust?”