If you have been asked by a family member or friend to act as the trustee for their trust, then you should see this as a major compliment. This person views you as a responsible person who can mind their most important assets. Additionally, this is a tremendous responsibility for you to take on. Managing and administering a trust does not always come easy. When you decide to accept their offer to become the trustee of a trust it is a serious matter which you need to be prepared for. Having questions is a good thing before you accept this position. Finding answers to those questions is even better.
Make no mistake- when you are acting as a trustee you are performing a job. This is not a ceremonial position or one that does not require much effort. Rather, it is a job that carries with it significant responsibilities and requirements for you to be able to fulfill those obligations. One of the serious realities of the situation is that you can be sued for violating the terms of your administrator/trustee status. This is not to say that you will be sued or that it is likely. However, you must understand what your responsibilities are when you step into this position on behalf of a friend or loved one.
A trustee is a fiduciary. A fiduciary is someone who has a legal obligation to act in the best interests of another person. An attorney is a fiduciary. An investment advisor is a fiduciary. Even if, for example, a particular investment vehicle could result in your advisor making more in commission, he is legally obligated as a fiduciary to advise you into the fund or investment that would maximize your dollars. A trustee, in much the same way, would need to do things related to your trust that are in the best interest of the beneficiaries. Their interests, if any, could not be considered. The terms of the trust would need to be honored above all.
What do you need to consider if asked to act as a trustee?
First, you need to be aware of the responsibilities of a trustee. There are certain actions that you can take concerning the trust which we are going to cover in this blog post from the Law Office of Bryan Fagan. Remember, if nothing else, that the grantor of the trust has placed their trust in you as an individual to act responsibly concerning their property. This isn’t a hypothetical estate or amount of property that makes up the trust. Rather, this property could represent the entire life’s efforts of the grantor. Therefore, you should act carefully and under the terms of the trust when it comes to your decision-making as a trustee.
Review all documents, including the trust itself
At the basic level of trusteeship, you need to be able to identify all the property contained in the trust as well as the terms of the trust. Real estate, investment accounts, vehicles, and cryptocurrency are all examples of the types of property that could comprise the trust. With a variable amount of property, it is possible that you need to investigate multiple sources as far as where each item is located. Being able to keep an eye on these items, including how and where they are invested, is key. Not knowing that your grantor’s investments are severely underperforming could be a reason why the beneficiaries hold you accountable for the loss in value of their share of the trust.
Next, you need to gain an understanding of what the desires are of the grantor. Read through the terms of the trust to learn more about what he or she wants to have happen with the property therein. There could be terms involving how the beneficiaries are to receive property. For instance, your grantor could have property set to be distributed only after a trust beneficiary graduates from college, earns their teaching certificate, has children, or some other condition outlined in the terms of the trust. These details matter a great deal, and you need to become familiar with them.
When your grantor passes, you will need to obtain their death certificate. Reaching out to the county health office for the county in which your loved one passed is a good place to start. This process can take some time even in the best of circumstances it may be a few weeks until you can obtain that certificate of death. If there are any outstanding circumstances surrounding the passing of the grantor, then it could take even longer. However, being able to administer the trust and distribute property can only occur once you have obtained this death certificate. You may also be able to go through the Funeral Home or other facility where your loved one was buried.
When it comes to the details that are a part of a trust you need to look at all the people who are named as beneficiaries of the trust. These are the people who will eventually be able to receive property and you may even want to contact them to inform them of the status of their friend, loved one, or benefactor. You can also review the terms of the trust as far as what property is to be distributed and how. That trust can set forth initial distributions of property but also have special conditions or even discretionary provisions which allow you to use your best discretion when distributing property, and to whom. Your powers as trustee will also be outlined in the trust documents.
Gain control and inventory the assets of the chest
now that you have gone through all the assets in the trust and are aware of what they are the next step in the process is to gain custody of them. For many trusts, this will not be difficult. All you may have to do is go through your grantor’s home and simply pull out items from desk drawers or other similar locations. The grantor’s spouse may even be able to assist you in performing these tasks.
However, the flip side of this conversation is that the assets of the trust may be in many different places and as a result, you may have to perform more due diligence when it comes to securing those items. Any costs associated with securing the property in question should be paid out of the proceeds of the trust. So, you need to be able to document any expenses that you incur 2 obtain this property. Make sure to keep your receipts. A court may require that you turn over those receipts in the future to be paid out of the trust. Or, even if probate is not necessary in this situation you will still need to document any costs associated with your work as the trustee to present to the beneficiaries of the trust.
An overlooked part of being a trustee is ensuring that property is titled in such a way that it will make the distribution of the properties simpler. For example, if the grantor’s property is comprised mainly of investment accounts, then you will need to go through the effort to ensure that those items are named in a way that you will be able to gain access to them for distribution purposes when that time comes. At the end of the day, it is your responsibility to make sure that the property in question is secured and in a location where you can gain ready access to it.
One of the most common responsibilities that comes up for trustees in this type of situation is the need to be able to go through the grantor’s safe. This safe may contain most if not all the most valuable property owned by your grantor. When you are performing this activity, it may be a good idea for you to bring another person with you to witness the inventory process. This way another person can vouch for your activities if a beneficiary attempts to challenge your actions as trustee.
Once you have inventoried the property which comprises the trust, you need to perform an appraisal of that property. Appraising property can be a challenge depending upon the type of property that needs to be appraised. For example, a single-family home is not difficult to appraise. The reason for this is that there are many homes to compare your grantor’s home to. On the other hand, there may be property in the trust that is difficult to appraise because it is unique or because there are not many pieces of property like it to which you can compare it.
There may be additional types of property that can be passed to beneficiaries that are not covered by the trust. Examples of these types of property are life insurance and retirement accounts. You can look to the beneficiaries on these accounts to find out who should receive that property. In most cases, you will need a copy of the grantor’s death certificate before you will be able to secure the funds from those accounts and pass the property along to the person who is entitled to it.
Get in contact with beneficiaries and creditors
What many people overlook in a situation involving assets and distribution to beneficiaries is that creditors have rights in these circumstances, as well. Specifically, creditors have the right to be made whole based on their debts as much as possible out of the proceeds of the trust. On a practical level, what this means for you as the trustee is that you cannot distribute property out of the trust until creditors of the passing of the grantor.
However, you should get in touch with the beneficiaries of the trust to notify them of the grantor’s passing and inform them of their being named as beneficiaries in the trust. You can provide the beneficiaries with your contact information so that they know who to get in touch with in the event they have questions or concerns. Please note that if a beneficiary asks for a copy of the trust he or she is legally entitled to obtain a copy. Therefore, you should have electronic versions of the trust documents available to send via e-mail to people when you are asked to do so.
A trustee will pay debts and final expenses of the estate
Trusts are assigned tax ID numbers from the federal government. With, it is your responsibility as the trustee to apply for and obtain a new tax identification number for the trust. At this stage, the trust is irrevocable even if it was not before. This means that it becomes its tax-paying entity and is no longer covered under the name of your decedent. Depending upon your role as executor or administrator of an estate you may also need to file a final tax return for the grantor. Once you have provided notice to the creditors of the grantor then you will also need to pay them to the greatest extent possible considering the amount of money in the trust.
Finally, there may be the final expenses associated with the passing of your grantor that need to be considered. There may be burial or funeral expenses that have yet to be paid. Your job as the trustee is to review the terms of the trust and to see what the trust language states as far as responsibilities of paying money towards these expenses out of the trust.
Distribute property by the trust language
The last step in administering a trust is to distribute property under the terms of the trust. In some situations, you will be tasked with distributing property immediately once creditors are made whole. However, there may be some property that is left over or is not to be distributed until a later date. At this point, you need to be very sure of what the trust requires of you as far as property distribution is concerned. Following the wishes of the trustee is the most important part of your job.
You can have peace of mind once you have followed through with these steps. As a fiduciary, your role is important, but the guidelines and objectives associated with your responsibilities are laid out in the trust documents. This is anything but an easy job to have but with the right help, it is certainly something that you can accomplish.
Working with an experienced estate planning attorney
If you have questions along the way as a trustee, then you should reach out to the attorney who helped draft the trust language. He or she will be able to guide you in determining the next, best steps to take when it comes to following through on these steps. It is not necessarily the case that you will immediately understand all the intentions of the trust and that there will not be any issues with beneficiaries, creditors, or the family of the decedent. When you run into circumstances like this it is especially important that you have a plan and understand what your obligations are to the decedent, their estate, and the beneficiaries of the trust.
It is a good idea to ask questions rather than to make assumptions about what you see and trust documents. Remember, that you have an obligation to the beneficiaries of the trust to distribute property and to do so in an efficient manner. Problems that you have managing the trust can cause the value of the property within the trust to decrease over time. This alone can cause you to run afoul of the law.
The bottom line is that when you owe an obligation to beneficiaries under a trust there is no doubt that you need to be extremely clear on what your responsibilities are but also what rights you have as a trustee to make decisions and carry out the wishes of the decedent. Rather than find yourself in a position where you have more questions than answers it is a good idea to reach out and speak with an experienced estate planning attorney sooner rather than later.
The Law Office of Bryan Fagan appreciates you spending time with us here today on our blog. We hope that you will join us again tomorrow as we continue to share relevant and interesting information about the world of Texas estate planning. Our lead estate planning attorney, Megone Trewick, posts videos on our YouTube page each week that will provide further context and information on these topics we write about here on our blog.
Questions about the material contained in today’s blog post? Contact the Law Office of Bryan Fagan
If you have any questions about the material contained in today’s blog post, please do not hesitate to contact the Law Office of Bryan Fagan. Our licensed estate planning attorneys offer free-of-charge consultations six days a week in person, over the phone, and via video. These consultations are a great way for you to learn more about the world of Texas estate planning as well as about how your family’s circumstances may be impacted by the filing of a probate case.