If you’ve been named as a trustee of someone’s trust, or if you’ve been asked to do so, you may be wondering what your duties are or would be. A trustee is charged with managing money or other property for someone else. This means you are a “fiduciary”, which gives you certain duties. Serving as a fiduciary requires you to be honest and trustworthy, and to act in good faith. If there’s another co-trustee, you have to work cooperatively with that individual. Your duties also include the following:
- Acting in the best interest of the trust’s beneficiaries. As a trustee, you have a duty to consider the beneficiaries when acting and making decisions. As a general rule, you must consider how any action (or omission) would affect the beneficiaries.
- Carefully managing trust property. You must manage the trust property as a normally prudent person would. You must use reasonable care, skill, and caution. Your actions will be guided by law and the trust document itself, but you should consult with a lawyer handling trust administration matters, a tax accountant, and possibly a financial advisor. Your duties may include investing money, managing or selling real estate, leasing mineral interests, or safeguarding personal property items.
- Keeping trust property separate from your own property. You should never deposit trust money in your personal bank account or investment account. It is important to hold all assets in trust accounts. When you sign documents, you should always sign as trustee for the trust. While you may be entitled to compensation for your acts as trustee, as well as reimbursement for trust-related out-of-pocket expenses, it is important that those payments are clearly documented.
- Keeping good records. You should keep records of all transactions done on behalf of the trust. This includes all income and all expenses, with dates, individuals involved, and reasons for the transactions. Save your receipts and notes so you can provide complete reports. The trust document will specify whether or not you must provide accountings, but even if you are not required to, it is important to keep those records in the event a question or problem arises in the future.
- Communicating with the beneficiaries. The beneficiaries of the trust are entitled to certain information about the trust, at different times. Consult with the trust document and your lawyer to find out your specific duties.
- Handling tax matters. If the Settlor (creator) of a revocable trust is still alive, the trust’s income is usually reported on that individual’s income tax returns. After a Settlor dies, the trust becomes irrevocable and may be required to obtain a separate tax ID number (EIN) and file separate state and federal income tax returns. Be sure to consult with an accountant quickly to ensure deadlines are not missed, tax returns are properly filed, and taxes are timely paid.
Common Mistakes of Trustees:
- Forgetting to file income tax returns
- Closing the trust without providing required information to beneficiaries
- Selling trust assets to themselves or their children without informing beneficiaries
- Using trust assets improperly (i.e., driving vehicles owned by the trust)
- Discarding personal items owned by the trust without informing beneficiaries
- Forgetting to ensure trust real estate is covered properly by insurance
- Discarding important paperwork
- Trying to perform duties without professional guidance
- Failing to act
Bottom line – read the trust document and make sure you understand your specific duties. Consult with professionals such as lawyers, accountants, and financial advisors to ensure you meet important deadlines, communicate as required with the beneficiaries, and manage trust assets properly. If we can help you with a trust, please call us at 580-234-6600.