Trusts are often done as a part of estate planning and are a way to make sure the beneficiary receives the desired funds or assets, even if they aren’t old enough to own them at the time the original owner passes.
When assets are put into a trust, a trustee needs to care for them carefully and ensure everything is handled appropriately until such time someone else becomes the trustee or the trust is no longer needed. While the person is a trustee, they have several duties to be aware of to care for it properly.
Understand How to Care for the Trust
The trustee must ensure they understand how to properly care for the trust to prevent potential issues, like the comingling of funds with their personal funds.
It is imperative they take this job seriously and that they are careful with everything they do to avoid being involved in trust litigation in the future.
The trustee can be anyone chosen by the benefactor. They don’t need to have any formal education related to trusts, but they do need to be willing to learn and able to understand how to handle the trust with care.
Know the Terms of the Trust
The trustee should ensure they familiarize themselves with the terms of the trust. They oversee ensuring the assets remain safe, so they should read through all of the terms and make sure they understand what they include.
The trustee should also make sure they see the records of the trust before taking it over so they can ensure everything is in order and that there are accurate records for the trust.
The trustee may want to work with a professional at this step so they know everything is done correctly and they can get help understanding any terms that may be unfamiliar or confusing.
Invest Assets as Necessary
The trust may specify that the assets are to be invested in to help them grow while they are in the trust. If this is needed, the trustee needs to learn about how to invest to minimize the risks as much as possible and increase the potential for the funds to grow over time.
Since it is their responsibility to ensure the trust is handled carefully, they will want to make sure they invest wisely with the help of a professional to avoid the potential for the funds to be lost in a bad investment.
Distribute the Trust When Needed
Depending on the terms of the trust, distributions may be necessary. This can happen if the beneficiary is supposed to receive yearly payments starting at a certain age or if the trust should be distributed in several parts over a period. The terms here can vary depending on what the benefactor wanted.
The trustee should ensure they understand how distribution works, when it should be done, and how to do it properly. They should also ensure careful records are kept of all distributions to keep an accurate account of the trust.
The trustee must be able to make decisions about the trust as they come up. For instance, the trust may say that additional distributions are possible as needed. It is up to the trustee to decide whether a requested distribution follows the terms of the trust and to determine whether to allow it.
They must consider the terms and overall state of the trust when making any of these decisions, as they do not want to go against the terms of the trust and end up in trouble as a result.
Keep Track of Records for the Trust
The trustee must ensure they keep accurate and complete records for the trust. If something does happen in the future, the records can help determine if they went against the terms of the trust or if they were following them to the best of their ability.
Trustees should record as much as possible, including any financial transactions, the state of investments, taxes related to the trust, and more. They can enlist help from an accountant as needed to ensure everything is accurate.
Prepare Tax Documents for the Trust
Trusts must be reported with taxes, so the trustee needs to make sure the proper tax documents are prepared every year. It is recommended that the trustee work with an accountant to reduce the potential for mistakes to be made.
There may be taxes that need to be paid on distributions or increases in assets that may require taxes to be paid. The trustee may need to pay that out of the funds in the trust to ensure everything is complying.
Answer Questions from the Beneficiary
The beneficiary may have questions about the trust, especially if it was created when they were very young or they want to keep track of the amount of money in it.
The trustee must be prepared to answer those questions and be able to answer them accurately based on the terms of the trust or the records. They may need to explain how distributions work, the criteria for additional distributions, the way the funds are invested, and more.
Keep Everything Confidential
The trustee must understand how to keep everything confidential to protect themselves, the beneficiaries, and anyone else involved in the trust. It is important for them to keep all documentation about the trust secure and to ensure information is not leaked to others about what the trust contains or if there is a trust for the beneficiary.
Being a trustee does mean a person has several roles and duties they need to handle for the duration of the trust. They need to make sure they can do this job to avoid potential issues in the future.
Those who are expected to become a trustee or who are newly in charge of a trust will want to ensure they are doing it correctly to prevent issues and make sure the funds and assets are handled properly. Talking to a professional can help with this.
