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?”