What You Need to Know as a Trustee

If you have been chosen as a trustee to one’s living trust, then understanding your responsibilities is crucial. The position of trustee places a considerable amount of work on your shoulders. It will be largely upon you to fulfill a trust’s purpose, over a indeterminate amount of time.

In many ways, it’s an absolute honor to be a trustee. It places a significant portion of one person’s entire material existence in your hands. It means that you know as a trustee to keep your duty and fulfill their wishes after they pass away.

But what is a trust? What is an estate? And what sets a trustee apart from other people involved in the inheritance process? To begin, you need to know as a trustee how trusts work. You need to know the role they play in estate planning, and what you need to know as a trustee when managing it.


Understanding Trusts

First and foremost, the trust. For estate planning purposes, a trust is an instrument through which property, funds, and assets can transfer from one person to another. Though there are other ways to do this, they each have their own faults and issues.

For one, simply gifting property to someone will incur a tax, unless you decide to dip into your unified gift and estate tax exemption limit (which will reduce the total exemption limit you may for your estate upon death).

Selling a relative a home or property at a reduced price doesn’t fly with the IRS either. They will take the difference between the price you set and the property’s true value and consider that a gift. You can simply leave property to a relative or loved one through a will.

There is a limit on how much control you have over how property and assets are going through a will when you pass away. Trusts provide extra control, give you a greater variety of options, and can potentially aid in avoiding the estate tax, depending on the circumstances and the type of trust.


The Anatomy of a Trust

The trust document allows property to pass from the original owner (the grantor) into the trust itself. It has conditions that allow the property to then flow from the trust to its respective beneficiaries (by way of the trustee, the trust’s manager).

A living trust is named such because it is drafted while the grantor is alive, and goes into effect immediately. The property funded into the trust is no longer technically within the grantor’s possession. They do, however control  the property if it is a revocable trust, and very little control if it is an irrevocable trust.

Once the grantor passes away, the trustee can transfer the property or assets over to the beneficiary. This is superior to most wills, because for one, it completely bypasses the probate process. It makes the trust private.

Secondly, a trust can be written to provide the grantor (and subsequently the trustee) far more control over how and when its contents are to be distributed. In contrast, a will is immediately executed once probate begins and ends.


More Than One Trust

A person can have more than one trust. Each trust is a separate entity. All things funded into a trust must be re-titled or amended in order to reflect their new status as part of a living trust, rather than in the hands of the grantor.

While trusts can be costly to both set up and maintain, it’s important to be efficient when handling a trust, and utilize them wisely, if at all. Some trusts are so complex that trustees have the right to be compensated for the work they put into maintaining a trust, and there are specific rules for compensation.

However, some trusts can also be simple, and do not require much work (nor any compensation, especially if the trustee is a relative or close friend). As a trustee, your job typically begins once the grantor of the trust has passed away or has become permanently incapacitated.


Speak With the Grantor

If you have recently been notified of your position as a trustee, it helps to contact the grantor. Speak with them about their plans for their trust, what they expect from you, and what their wishes are. Trust documents, when well-written and comprehensively drafted by professional estate planners, can be very elucidating.

But there are details that don’t translate very well onto paper, and are best discussed in person. Knowing exactly what the grantor wants can go a long way towards helping you translate their trust into action.

If you lack the means to execute a trust yourself – especially if it is a hefty trust – then speaking with the grantor may help you find resources and organizations that might help you with the legwork, from providing accountants and legal help, to pointing you in the direction of all potential co-trustee organizations (typically law firms, trust companies, or banks), all of whom need to cooperate to fulfill a living trust.


If You Do Not Want to Be a Trustee

You might decide that you do not want to be a trustee, then you need to formally resign the position. Yes, you may not have elected to become a trustee to begin with. Getting out of it requires you to:

    1. Write a document declaring your intention to step down from the position.
    2. Send a copy to everyone involved in the trust process, specifically all trust beneficiaries (and the grantor, if you choose to resign before they pass away).

When writing a trust, there are several trustees in mind. If the first choice cannot take on the job, then it’s up to the successor trustee to take up the job instead. This is also to ensure that if the grantor ends up outliving the trustee but doesn’t have the means or the time to amend their trust before passing away as well, there’s another trustee identified in the trust to take the first choice’s place.

Managing  a trust can be hard work, as well as to what you need to know as a trustee. However it is in the interest of honoring a loved one’s or friend’s last wishes.

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