While almost everyone executes a Last Will and Testament as their first estate planning document, the average estate plan eventually includes additional tools and strategies aimed at creating a more comprehensive estate plan. A trust agreement is one of the most common of those additional tools. If you decide to incorporate a trust into your estate plan, you will need to choose a Trustee to administer that trust. Choosing the wrong Trustee can dramatically increase the likelihood of problems during the administration of the trust. To help you make the right choice, the attorneys at Legacy Care Law Firm discuss how to choose your Massachusetts Trustee.
Trust Administration Basics
A trust is established through the creation of a trust agreement. Within the trust agreement, the Settlor (creator) of the trust must appoint a Trustee. A Trustee can be any qualified adult, including a friend, family member, or professional (such as an attorney). The Settlor can also appoint more than one Trustee, making them Co-Trustees or appoint an entity, such as a bank, to be the Trustee. The Trustee’s overall job is to guard the trust assets and oversee the administration of the trust. Administration the trust, however, involves numerous duties and responsibilities, including:
- . The Settlor of the trust creates the trust terms, and those terms dictate how the trust should be administered. The Trustee needs to have a clear understanding of those terms and is legally required to follow them without deviation unless a term is illegal, impossible, or unconscionable. The Trustee is required to understand the trust purpose, as outlined in the trust agreement, and to make decisions with that in mind. A Trustee cannot allow his/her personal opinion to get in the way while administering a trust.
- One of the most important aspects of a Trustee’s job is protecting the trust assets. The Trustee is also responsible for investing the trust assets to help the principal grow. Unless the Settlor specifically directs the Trustee to make riskier investments, all investments should be low risk and protecting the trust principal should take precedence over growing the trust assets.
- . The Trustee has a duty to keep trust beneficiaries apprised of trust business and to communicate with beneficiaries as necessary.
- . The terms of the trust agreement will dictate how the distribution of trust assets should be handled. The Trustee, however, is responsible for making sure those terms are followed and that the beneficiary receives the distribution according to the terms of the trust agreement.
- The trust agreement may give the Trustee the authority to make discretionary distributions. If a beneficiary needs funds prior to a scheduled distribution, for example, the Trustee may have the authority to grant that request.
- A Trustee should keep detailed records of all trust business, including distributions, payment of trust bills, and time spent administering the trust because those records may be needed to defend the trust, justify trust expenses, or even prevent the Trustee from being held personally liable for mistakes made during the administration of the trust.
- . Because a trust is a separate legal entity it is subject to taxation. Whether the trust must file a tax return and/or pay taxes will depend on the type of trust, the value of trust assets, and other variables; however, the Trustee of the trust is responsible for determining if any taxes are due. The Trustee must also file the appropriate tax returns and pay any taxes due.
Factors to Consider When You Choose Your Massachusetts Trustee
A Trustee is in a fiduciary position, meaning that the utmost care must be taken to protect the trust assets and that all decisions must be made with the best interests of the beneficiaries in mind. A Trustee is also required to juggle a considerable number of duties and responsibilities while administering the trust. All of this should be taken into consideration when appointing a Trustee to limit the likelihood of costly mistakes being made by the Trustee. Before appointing a friend or family member based solely on your relationship with that person, consider whether that person has the following essential characteristics:
- . The Trustee you appoint will be responsible for managing and investing the trust assets. Ideally, your Trustee should have a background or education in finance. By the same token your Trustee must understand the trust terms and the state and federal laws that are applicable to the administration of the trust. That makes someone with a legal background an ideal candidate for the position.
- Your decision should not be based entirely on the fact that you trust someone; however, being trustworthy is certainly a necessary characteristic for a Trustee given that the Trustee will control the money and assets you use to fund the trust. The Trustee is also responsible for distributing those assets to beneficiaries and paying trust bills, including his/her own fee for acting as the Trustee.
- . Your Trustee may not agree with the terms of the trust agreement, but that cannot interfere with his/her job as Trustee. A Trustee is legally required to administer the trust and make discretionary decisions with the stated trust purpose in mind and by using the trust terms created by the Settlor without regard to the Trustee’s personal opinion.
- . Consider whether your prospective Trustee will likely create a conflict. If he/she is a member of the family, for instance, will appointing that person as your Trustee create a conflict within the family? Are other family members beneficiaries of the trust, putting the Trustee in a potentially awkward position? What about business dealings that could create a conflict for the Trustee? Whenever possible, avoid appointing a Trustee who will likely create a conflict.
- . People frequently make the mistake of assuming that someone is willing to serve as the Trustee of the trust they create. With that in mind, be sure to discuss the position with a prospective Trustee before appointing him/her to the position. Along with making sure that a prospective Trustee is willing to serve, take into consideration whether the person will realistically be available to fulfill the duties and responsibilities involved in administering the trust. Consider where the person lives or is likely to live in the future as well as his/her existing family obligations. Finally, consider the person’s age and health when deciding if they would make an ideal candidate for Trustee.
Contact Our Trust Administration Attorneys
For more information, please join us for an upcoming FREE seminar. If you have additional questions about how to choose your Massachusetts Trustee, contact our trust administration attorneys in our North Andover, Woburn, and Beverly offices at (978) 969-0331. Our Salem and Nashua, New Hampshire office can be reached at (603) 894-4141.
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