What Is Trust Administration?
Trust administration is the management of the assets that exist within a trust. A trust is created when an individual (known as a settlor) places their assets into the care of a third party (known as the trustee) for the benefit of someone else (known as the beneficiary).
The most notable time when you might benefit from a trust is in the event of the death of a loved one. For example, if a parent dies while their child is still young, they might leave monetary funds in a trust. These funds will be cared for by the chosen trustee until the child is old enough to receive the funds.
In short, a trust provides a space for someone's assets to be cared for by a third party. In many cases, trust administration starts when the settlor of a trust passes away.
Trustees, Beneficiaries, Settlors
In trust administration, there are three key players: trustees, beneficiaries, and settlors. Each person is connected to the assets in the trust in some way, but they each play very different roles.
Once a trust is created, the trustee has the most involvement in the day-to-day. Their job is to hold, manage, and administer the funds in the trust on behalf of the settlor (the creator of the trust). Their fiduciary duty as a trustee requires them to act in the best interest of the beneficiaries of the trust.
The duties of a trustee will be laid out upon the creation of the trust, and while they may differ depending on the situation, some tasks are common. The trustee is in charge of the distribution of the trust's funds to the beneficiaries. While the assets remain a part of the trust, the trustee is responsible for any investments that are made, ensuring any properties included in the trust, and overseeing the payment of taxes.
There are several kinds of trustees:
- Charitable trustees manage funds left in a charitable trust and follow the instructions left by the creator of the trust.
- Investment trustees manage the day-to-day operations of an investment account, helping it to grow over time.
- Successor trustees are people who step in to manage a trust when the person who created the trust is unable to do so (through death or incapacitation).
- Corporate trustees work with large firms that manage trusts for clients that pay them (other types of trustees are not always paid for their services like corporate trustees are).
- Bankruptcy trustees step in when a person or business declares bankruptcy and their assets need to be administered (these trustees are appointed by the U.S. Bankruptcy Court).
Each type of trustee, no matter their specific role, is meant to be the one responsible for trust administration and the distribution of assets. Some trustees work voluntarily, often in the case of a family trust, while others are paid for their trust administration services and the investments that they make within the trust.
A beneficiary is a person or entity that benefits from a trust, will, life insurance policy, or retirement account. When a settlor is leaving funds to a person, it is often a way to take care of that person financially after the settlor's death. Sometimes trusts are created because the beneficiaries are minors at the time of the settlor's death and are unable to manage the funds on their own.
Settlors can also leave funds to a charity organization or nonprofit. This ensures financial assistance for a cause the settlor cared about in their lifetime.
Leaving a set list of beneficiaries and instructions on a trust helps to avoid any contestation in the event of the settlor's death. It is important to note that some settlors allow trustees to distribute assets unequally to beneficiaries at the discretion of the trustee.
A settlor is a person who creates a trust. There are many reasons a settlor may create a trust. It may be to avoid any family contesting of assets after the settlor's death. It may also be to provide funds for a charitable organization. Trusts may simply be created to provide an easier transition and clear instructions for the distribution of assets to beneficiaries after the settlor's death.
Settlors are in charge of choosing the trustees and beneficiaries of a trust. The settlor is not normally able to be a beneficiary of the trust; however, they can be listed as a trustee tasked with handling the assets on a day-to-day basis until their death.
The settlor often creates a trust out of a desire to care for family members and loved ones, or provide support to charitable causes financially after their death.
Trustees vs. Power of Attorney
When you give someone power of attorney over your finances, you are giving them the power to make decisions for you if you are no longer able to do so.
The main difference between a trustee and someone with power of attorney falls in the decision-making process. A trustee may have the ability to make decisions in the day-to-day (such as when investing the funds within the trust), but the settlor lays out the duties of the trustee very clearly in the trust.
This can include specific amounts of funds for specific beneficiaries, goals for the assets within the trust, and more. A power of attorney has a bit more flexibility in the decisions they are allowed to make.
Power of attorney, unlike the role of a trustee, can go beyond finances. Some people appoint a medical power of attorney which gives an appointed person the power to make decisions on the behalf of another if they are no longer able to make medical decisions for themselves.
When Trust Administration Is Needed
Trust administration takes place when the settlor of a trust dies and estate planning is necessary. Trustees must notify the beneficiary of the shift within the trust after the original settlor has passed. With the settlor no longer around, the trustees are tasked with upholding the trust and working in the beneficiaries' best interest.
If you require trust administration, either as a settlor or as a trustee who has been given the task, consulting with legal counsel can be incredibly helpful. Alternatively, you can visit trusted websites to learn more about estate planning as you prepare for the administration of your end-of-life plans.
Can I Solve This on My Own or Do I Need an Attorney?
- DIY is possible in some simple cases
- An attorney is on your side during complicated legal decisions
- Cases with trusts and beneficiaries are rarely cut and dry
- Get tailored advice and ask your legal questions
- Many attorneys offer free consultations