Trusts are valuable estate planning tools for a number of reasons. Most especially, a trust can allow you to circumvent the need for probate, either in whole or in part. Depending on the type of trust created, there are other benefits that can be garnered as well. For starters, a trust can provide a shield against a beneficiary’s creditors. They can also help encourage your beneficiaries down certain life paths you may want for them.
For instance, you could set up your trust to make distributions contingent on the completion of certain life goals such as college, being gainfully employed or reaching a certain age. A trust can also provide financial support for a loved one with special needs without jeopardizing their access to need-based government benefits. They can also be useful to avoid ancillary probate if you own real property in multiple jurisdictions.
With these potential benefits in mind, you may very well want to consider whether a trust would be beneficial to your estate plan. Learning the basics of how a trust is created and “administered” will be helpful to you in understanding how your estate plan will work. Let’s take a look at what is involved in trust administration.
Understanding the Role of a Trustee: Responsibilities and Similarities to an Estate Executor
The administrator of a trust is called the “trustee.” To establish a trust, the trust creator, referred to as the “settlor” or “grantor,” creates the trust, establishes the terms of the trust, and funds the trust by transferring the ownership of specific assets to the trust. The grantor also appoints the trustee who is tasked with managing the trust according to the terms set forth in the governing trust document.
While there are some differences, the role of a trustee is similar to that of a personal representative of an estate (or executor) appointed during probate proceedings. Administration of the trust will involve notifying the trust beneficiaries as the personal representative must notify beneficiaries under a will in probate proceedings. A trustee will need to pay the expenses of the trust, including taxes as the personal representative (executor) must do so for the probate estate.
The trustee will distribute trust assets to trust beneficiaries according to the terms of the trust in the same way that the personal representative distributes assets according to the terms of the decedent’s will. (If there is is no will; assets will be distributed according to the state’ intestacy laws.) A trustee will also need to collect, manage, and invest trust assets.
The Importance of Clear Trust Instruments and Considerations for Trustee Compensation
Administering a trust may require a significant amount of time and effort, particularly if the terms or the assets of the trust are complex. Having a properly drafted trust instrument can help the trustee understand your specific wishes for the trust. Knowing what is expected of the trustee and the duties involved is crucial; a clear, unambiguous trust instrument makes the process go smoothly.
Trustees are often entitled to commissions, which are set by state law. As the grantor who sets up the trust, you may consider an alternative compensation formula that best serves your wishes and the nature of your trust and its assets.
Contact an Experienced Estate Planning Attorney
If you would like to learn whether including a trust in your estate plan is beneficial to your situation and objectives, reach out to the team at E.A. Goodman Law to discuss your needs. Contact us today.
Posted in: Estate Planning