Administration of a trust is similar to a probate administration—it is the process by which a decedent’s estate is distributed. In both situations, a personal representative is appointed to handle the estate. Tasks include gathering all of the estate’s assets, settling the decedent’s outstanding bills, satisfying estate and gift tax liabilities, and ensuring proper distribution to the beneficiaries, among other responsibilities.
The personal representative in a trust administration is called the trustee. Usually, the grantor (the person who creates the living trust) serves as the initial trustee during his or her lifetime, and is in charge of managing the trust assets. Since the beneficiaries’ rights do not vest until the grantor becomes incapacitated or dies, the initial trustee is not required to account for his or her management of the trust property.
Once the grantor passes away, the successor trustee (named by the grantor in the trust) manages the estate. The trustee may be a friend, family member, or a professional trustee firm. An individual or firm in this position holds many powers, such as the power to buy or sell trust property, make investments on behalf of the trust, adjust the beneficiaries’ distribution amounts, and even change beneficiaries. The grantor will have spelled out the powers he or she wished to give to the trustee in the trust itself.
Regardless of the powers given, the successor trustee owes several duties to the beneficiaries. Generally, the trustee must exercise the reasonable care of a prudent person acting in a similar situation, but there are other, more specific duties. These include the duty to deal impartially with all of the beneficiaries, the duty to refrain from dealing with trust property for the trustee’s own benefit, and to make the trust property productive.
Many individual trustees wisely seek legal counsel to guide them through the process, taking the complexity and worry out of handling the trust’s assets, and ensuring that the grantor’s intent is realized.
