Whether you’re getting older or looking to map out the future of your finances, many people turn to legal documentation to make the unknown easier for their loved ones. This includes creating a trust.
A trust is a fiduciary arrangement that lays out how and when your assets are divided among your beneficiaries. Since trusts usually avoid probate, beneficiaries may gain access to assets more quickly than those transferred using a will. The trust also has its own federal tax identification number and files separate tax returns.
When putting together a trust, there are usually three parties involved; a trustor, trustee, and beneficiaries. While the trustee may also be a beneficiary, it’s important to understand that each has different rights and responsibilities.
What is a Trustor?
This one is pretty simple, the trustor is the person who creates the trust and contributes assets to it. The trustor transfers property to the trust to be managed by the trustee and creates guidelines for managing those assets.
What is a Trustee?
The trustee has the right to represent the trust for legal purposes and can determine the best time and method to distribute the assets to beneficiaries. The trustee also has a fiduciary duty to protect the trustor’s assets (if living) and for the beneficiaries who will receive them after the trustor dies.
As the trustee, you are responsible for keeping accurate records, filing tax returns, and reporting to the beneficiaries as required in the trust. If not done correctly, it can lead to a challenge of the trust.
What is a Beneficiary?
As a beneficiary, you have less legal responsibility, and essentially just receive the assets of the trust. Depending on how the trust is executed, a beneficiary can receive money and assets either outright or in smaller amounts over time. There can be, and often is, more than one beneficiary.
As a beneficiary, you also have the right to know certain information about actions the trustee takes. This ensures the trustee is acting in the best interests of all parties included within the trust.
Do you have more questions about your responsibilities as trustee or beneficiary?
At Marcia L. Campbell, CPA we act as trusted professional fiduciaries for many of our clients. As licensed professionals, we understand the importance of knowing that your trust, estate, or conservatorship is being managed legally, ethically, and accurately. We act as caring and objective fiduciaries and client advocates.
If you need help, please contact us by filling out our Contact Form or by giving our office a call at +1(951)686-3608.