A recent article in Elder Law Answers, an online publication primarily for lawyers but also available to the public, discussed “A Brief Overview of a Trustee’s Duties.” It occurred to me then that most members of the public, while aware of the term “trustee,” did not really know what a trustee does.
If asked to be a trustee, anyone, unless previously experienced in this field would not know what the responsibilities are. How much work is involved? What is the time frame? Do I need to prepare tax returns and handle accounts? Can I get help? When do my responsibilities end?
Because there are many kinds of trusts, the answers vary.
Taking the simplest application of the term trustee, which is establishing a living trust for yourself or for yourself and your spouse, being named the trustee of your own trust primarily involves having a trust document and retitling assets into the name of the trust. You continue to file income tax returns using your same Social Security number and you include income generated from trust assets as your income.
When you die, the assets in your trust if you are a Pennsylvania resident at that time, are still taxed for inheritance tax purposes as though they were inherited directly from you. The rate of taxation, as in direct inheritance, depends on the relationship to you — spouses at 0%, children at 4½% and so on. So your duties as trustee there are relatively light. You simply change your “hat” from you as individual to you as trustee and can sign documents as “Joan Smith, Trustee of the Joan Smith Trust” instead of simply “Joan Smith.”
The trust document would typically name at least one successor trustee — who often but not always, may be one of your adult children or it could be a bank or financial institution. What are the responsibilities there? If you become disabled your successor trustee would become responsible for managing the trust assets, dealing with banks, financial institutions and others on your behalf. The successor trustee can continue in that position after you die and details of his or her responsibilities should be found in the trust document.
Pennsylvania, along with other states, has also adopted the Uniform Trust Act that contains additional guidance regarding responsibilities of a trustee.
Next, you might have a simple trust in your will, known as a “testamentary trust” that is intended to provide support, for instance support for minor beneficiaries who might inherit. Often parents or the surviving parent of a minor beneficiary or your executor might be named as trustee for the child’s funds until the child reaches a certain age. What are the responsibilities there?
All trustees of all trusts have what is referred to as "fiduciary responsibility." A fiduciary is held to a high standard of accountability. The trustee must keep accurate accounts. He or she cannot raid the trust funds for his own benefit. She can generally be paid a reasonable fee unless the trust documents indicate otherwise.
If appointed a trustee, the usual trust document will give the trustee the ability to retain others such as investment advisors, attorneys and accountants to help you to fulfill your responsibilities. Sometimes, serving as trustee is as simple as setting up a trust account. Sometimes it can be much more. It depends.
A trust ends when it says in the trust documents it ends or request can be made to the Court to terminate or modify the trust under state law.
There are more complicated trusts. As the level of complexity increases it becomes more important to seek help so that the Trustee’s responsibilities are performed properly.
Here are examples.
A supplemental needs trust (also referred to as a special needs trust) which can be provided for in a will (another form of “testamentary trust”) or can be drafted separately is intended to benefit disabled individuals as beneficiaries who, if they inherited directly, could lose government benefits. There are different kinds of supplemental needs trusts.
Others include irrevocable income only trusts, intentionally defective grantor trusts, non-grantor trusts, qualified personal residence trusts (QPRT’s) and many more. If you feel you need help, get help from a professional who understands.