10 Do’s and 1 Don’t for the Trustee of a Trust

Whether it feels like an honor or a burden (or both), you may have been appointed to serve as the trustee of a trust. What sort of responsibilities do you face in this role, and what can you do to ensure you’ll carry them out successfully?

10 Do’s

Here are 10 do’s to get you started:

Do read the trust document: It sets out the rules under which you will operate, so you need to understand it completely, including your specific responsibilities and limitations.
 
Do create a checking account for the trust: All income and expenses should go through this account. While you can and should invest the money, a checking account will enable you to make distributions and payments and keep track of them.
 
Do act in the best interests of the beneficiaries: You must avoid any conflicts of interest. You have what’s called a “fiduciary” duty to them, which is an extremely high standard.
 
Do keep your personal financial dealings entirely separate from the trust: For instance, you cannot borrow money from the trust or lend the trust money to anyone.
 
Do communicate with the trust beneficiaries to understand their needs: You want to prioritize transparency and openness with beneficiaries. This may include updating them on the trust’s performance or any changes that may affect their interests. In addition, you may provide the beneficiaries and anyone else indicated in the trust with an annual account of trust activity. This can be a copy of the checking and investment account statements, or a more formal trust account prepared by an accountant or attorney.
 
Do invest the trust funds prudently and productively: You cannot simply leave the trust funds in a savings account, and you can’t put them all into a promising new company.

You need to diversify the trust portfolio among stocks and fixed income securities. Working with a professional investment advice may be a good idea.
 
Do keep meticulous records of all transactions and decisions you make on behalf of the trust to ensure accountability.
 
Do be aware of any public benefits the beneficiaries may be receiving and make sure you do not jeopardize their access to these benefits.
 
Do file annual income tax returns for the trust.
 
Do stay informed: Consider enhancing your knowledge and skills as a trustee. For example, this may include attending workshops or seminars on trust management. You want to do what you can to ensure you are fulfilling your duties effectively and responsibly.

1 Don’t

Don’t fly solo: Get professional advice to make sure you are correctly fulfilling your role. For one, an estate planning attorney can provide invaluable guidance by clarifying your legal responsibilities as a trustee.

A financial advisor can also play a crucial role in helping a trustee manage the trust’s assets effectively. They can provide insights into investment strategies that align with the trust’s goals and the beneficiaries’ needs. By assessing the trust’s financial situation, a financial advisor can recommend appropriate asset allocations, ensuring that the trust grows over time while minimizing risks. In addition, they can help the trustee understand the tax implications of various investment decisions.

In addition to estate planners and financial advisors, several other professionals can support a trustee in managing a trust effectively.

Certified public accountants (CPAs) can assist trustees with the financial reporting and tax obligations of the trust. They can prepare tax returns, advise on tax strategies, and ensure that the trust maintains proper financial records. An accountant’s expertise can help the trustee avoid costly mistakes and ensure compliance with tax laws.
Some trustees may choose to work with trust administration firms that specialize in managing the day-to-day operations of trusts. These firms can handle tasks such as record-keeping, distribution of assets to beneficiaries, and communication with all parties involved. This support can alleviate some of the administrative burdens on the trustee, allowing them to focus on more strategic decisions.
Insurance professionals can help trustees assess the need for various types of insurance, such as life insurance or liability coverage, to protect the trust’s assets. They can provide guidance on selecting appropriate policies that align with the trust’s goals and the beneficiaries’ needs.
For trusts with significant assets, hiring an investment manager can be beneficial. These professionals specialize in managing investment portfolios and can help the trustee make informed decisions about asset allocation, risk management, and investment performance. They also can provide ongoing monitoring and adjustments to the investment strategy as market conditions change.

Collaborating with these professionals can provide you with peace of mind. You will know that you are handling the trust to the best of your ability, with expertise and care. It also can provide reassurance to beneficiaries that their interests are in fact top of mind.

Working With an Estate Planning Attorney

As mentioned above, an estate planning attorney can serve as a strong source of support for a trustee of a trust. They can help in ensuring compliance with trust laws and helping navigate complex tax issues. They can also assist in drafting necessary estate planning documents, resolving disputes among beneficiaries, and offering strategies to protect the trust’s assets, ultimately ensuring smooth administration.