We frequently receive calls from individuals who have been named Executor or Trustee, asking for clarification about their responsibilities. The person in charge of managing a trust, the trustee, has a fiduciary duty to the beneficiary, which is described by the terms of the trust. Being a fiduciary requires putting the interest of the beneficiary over your own interests, no matter what. This is explained in a recent article titled “Estate Planning: Executors, executrix and personal representatives” from nwitimes.com.
Understanding the responsibilities of the trust requires a review of the trust documents, which can be long and complicated. An experienced estate planning attorney will be able to review documents and explain the directions if the trust is a particularly complex one.
If the trust is a basic revocable living trust used to avoid having assets in the estate go through probate, duties are likely to be similar to those of a personal representative, also known as the executor. This is the person in charge of carrying out the directions in a last will.
A simple explanation of executor responsibilities is gathering the assets, filing tax returns, and paying creditors. The executor files for an EIN number, which functions like a Social Security number for the estate. The executor opens an estate bank account to hold assets that are not transferred directly to named beneficiaries. And the executor files the last tax returns for the decedent for the last year in which he or she was living, and an estate tax return. There’s more to it, but those are the basic tasks.
A person tasked with administering a trust for the benefit of another person must give great attention to detail. The instructions and terms of the trust must be followed to the letter, with no room for interpretation. Thinking you know what someone else wanted, despite what was written in the trust, is asking for trouble.
If there are investment duties involved, which is common when a trust contains significant assets managed in an investment portfolio, it will be best to work with a professional advisor. Investment duties may be subject to the Prudent Investor Act, or they may include the name of a specific advisor who was managing the accounts before the person died.
If there is room for any discretion whatsoever in the trust, be careful to document every decision. If the trust says you can distribute principal based on the needs of the beneficiary, document why you did or did not make the distribution. Don’t just hand over funds because the beneficiary asked for them. Make decisions based on sound reasoning and document your reasons.
Being asked to serve as a trustee or executor reflects trust. It is also a serious responsibility, and one to be performed with great care. Please contact our office if you are ready to appoint a new Trustee or Executor. We can help.
Reference: nwitimes.com (July 18, 2021) “Estate Planning: Executors, executrix and personal representatives”