Being appointed a trustee is a big responsibility that comes with a list of obligations. As a trustee, you’re required to manage the assets of a trust for the benefit of its beneficiaries according to the directions of the person who created the trust and the requirements of state law. When taking on the role of trustee, it’s important to understand those responsibilities and know when to seek professional help. Here are a few key items to consider.
Distribution of Assets
The trust document states how the trustee is to use and distribute the trust assets. Some trust documents provide the ability for a trustee to make distributions during the trust administration under certain circumstances. The trustee must determine which beneficiaries can receive a distribution according to those provisions. Also, they must make sure that the distribution meets the trust requirements.
As a trustee, it’s your responsibility to follow an investment strategy that maintains risk and return objectives best suited to the trust as a whole. Your investments should not be risky and must take into account the interests of all the trust beneficiaries.
Another important role of a trustee is to keep track of all income affiliated with the trust. The law requires trustees to provide information to the beneficiaries about the existence, the assets, and the administration of the trust. As a trustee, you must give an account of this information to the beneficiaries on an annual basis.
Depending on the type of trust, the trustee will have to file an annual tax return and may have to pay taxes. The two basic types of trusts are revocable trusts and irrevocable trusts.
A revocable trust can be changed by the trustor at any time but comes with a few disadvantages. One of those disadvantages is that the trust assets are subject to state and federal estate taxes.
An irrevocable trust does not have the same flexibility and is ultimately set in stone when the agreement is signed. However, irrevocable trusts remove the assets from the trustor’s taxable estate, meaning they are not subject to estate tax upon death, and they also relieve the grantor of tax responsibility for any income generated by the assets.
Do you have questions about your responsibilities as trustee?
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.