Can You Be a Successor Trustee and a Beneficiary of a Trust?
Trusts are legal tools used in estate planning. Forming a trust — whether it'due south a living trust, a testamentary trust or some other type of this system — involves the creation of important legal relationships between 3 different roles: grantors, beneficiaries and trustees.
Trusts are valuable tools for protecting important assets when used accordingly and wisely. Understanding how to utilise and administer trusts properly involves learning more almost the roles and responsibilities of the people involved in administering them. Trustees in detail take some significant duties to fulfill, ofttimes throughout the lifetime of the trust. Learn more well-nigh these key responsibilities to better understand what a trustee does and how a trust operates.
The Basics: What Are Trusts, Grantors and Beneficiaries?
A trust is a legal entity that an individual creates to receive and hold avails while that private is alive. A trust is different from a will. A volition's various manor processes don't begin until you lot laissez passer away. Upon death, your assets go a role of your manor, and they're transferred to the beneficiaries you've listed in your will — typically afterwards your volition goes through a process called probate. In a living trust, notwithstanding, the avails move out of your ownership and into the buying of the trust once the trust is created and administered — while you lot're live. In one case you pass, the assets transfer to your designated beneficiaries.
In other situations, you tin can create a testamentary trust in your volition. In that state of affairs, you own the assets until y'all die, but those assets are placed in the trust upon your death. When creating that trust in your will, yous define the conditions nether which those assets volition exit the trust to get to the beneficiaries.
The person creating the trust (either while they're alive or in drafting a will that takes effect when they die), is called a grantor. The person or people who eventually get the assets from the trust (according to whatsoever rules the grantor establishes when they create the trust) are beneficiaries. And there's a third role that's essential when it comes to creating and administering trusts: the trustee.
When a grantor creates a trust, they likewise appoint a trustee. The grantor may also name successor trustees who'll accept over in case the initial trustee becomes unable to fulfill their duties. The trustee'south chore is to follow the instructions that the grantor has set up out in the trust — a very generalized explanation of the role of a trustee. The details are of import and will vary depending on the type of trust that's created, forth with the provisions in it that are unique to the grantor's wishes. Trustees can be individuals or corporations with expertise in managing assets.
An individual named equally a trustee may bring in a corporate trustee to assist in managing the trust. Even if an private trustee doesn't bring in a corporate trustee, they tin can — and should — consult with lawyers virtually the legal rights created in the trust, consult with investment advisors nigh investing the assets in the trust and consult with tax advisors about the trust'due south tax liabilities. Generally, however, trustees have several key responsibilities:
- To confirm what is required by the trust. This may include verifying what assets should exist within the trust and the ways that those avails are within the trustee's control; the identity of the beneficiaries; and that accurate and complete records of the values and ownership of the avails are intact.
- To investigate whatever outstanding avails if the trust documents refer to assets that don't seem to be owned in the trust. Investigations may require searching for titles of real belongings or searching for and finding investment share certificates. If a trustee identifies assets that aren't yet within the buying of the trust, these may need to exist brought into the trust. The way this is done volition vary depending on the nature of the avails. It may require the help of professionals, including lawyers.
- To invest the trust assets in a way that preserves them for the benefit of the beneficiaries, unless the trust specifically prohibits the trustee from investing the assets. This duty of the trustee to the beneficiary is called a fiduciary duty. When investing those avails, a trustee is obligated to invest with the same care, skill, diligence and judgment that any prudent investor would apply.
- To administer the trust according to the specific instructions in the trust document. This means the trustee is required to follow the specific terms of the trust. An example of a term that a trustee must follow would be a direction to give a beneficiary a sure corporeality of coin when that beneficiary reaches a sure historic period. In situations where the directions may non be clear, the trustee should obtain professional communication from a lawyer, who may get recommendations from a court about means to translate the terms of the trust.
- To do the paperwork that'due south legally required to fulfill their duty of administering the assets in the trust. One example of the paperwork a trustee might need to gear up and file is Form 1041 — a tax return for the trust that sets out the trust's income, deductions, gains, losses and other information. Depending on the complexity of the trust, fulfilling this obligation might require the trustee to get professional person revenue enhancement communication to fulfill their fiduciary duty.
- To account to the beneficiaries for the trustee'southward handling of all the assets in the estate and to communicate regularly with the beneficiaries by providing statements of account, copies of tax returns and other documents. A beneficiary who'southward concerned almost the trustee's communication or accounting (or lack thereof) can ask a court to society the trustee to provide data or documents.
What Is a Trustee's Fiduciary Duty?
Though trustees manage the assets in a trust, the beneficiaries are the equitable owners. This means the beneficiaries own the future do good of the assets, technically not the assets themselves. Trustees are required to manage those assets for the benefit of the beneficiaries who own the equitable involvement.
Cornell Law Schoolhouse'due south Legal Information Institute describes a trustee'southward fiduciary duty as follows: "Trustees take sure legal duties in relation to the direction of the trust. The most important duty is the duty of loyalty. Since trustees are the legal owners of the trust property, the duty of loyalty prevents the trustee from taking reward of the legal ownership to use the trust property for his own benefit. The trustee must act in skillful organized religion when entering into transactions and invest prudently."
I of the key points is that a trustee'southward duty is owed to the beneficiaries. Someone who violates the duties of their trustee role is potentially liable for amercement to those beneficiaries. Some of the most common means that a trustee might breach their legal and fiduciary duties include:
- Failing to follow the grantor's instructions precisely
- Not handling the avails of the trust as a prudent investor would
- Exploiting the assets of the trust for their own benefit rather than for the benefit of the grantor and beneficiaries
Being designated as a trustee is an indication that the grantor significantly trusts you lot and is confident that y'all'll follow their instructions advisedly for the benefit of the trust's beneficiaries alone. Acting as a trustee involves significant legal obligations that you should perform while obtaining advice from trustworthy legal experts.
Source: https://www.reference.com/business-finance/understanding-trustees-duties-responsibilities?utm_content=params%3Ao%3D740005%26ad%3DdirN%26qo%3DserpIndex
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