Are you named as someone’s trustee, but have no idea what that means? Here we’ll go over a few key terms and roles involved in estate or legacy planning–and what to do if you’re asked to help settle someone’s estate as a trustee.
What is a trust?
A trust is a legal entity that holds financial assets, and there are several types:
- A revocable living trust is set up while someone is living. It allows a grantor (the person creating the trust) to transfer personal assets to the ownership of the trust–often for tax or privacy reasons–and can be changed or revoked at any time.
- A testamentary trust is similar, but utilized after someone’s death. A trust can be utilized in tandem with a will–or function on its own–and both can transfer ownership of assets.
- A minor’s trust is set up specifically for the care of minor children, in the case of a parent or guardian’s death or incapacity.
- A spendthrift trust is similar, but usually used for care for adult children/heirs. It can be used to distribute funds over time instead of in a lump sum, or when an heir has trouble managing money, a strained marriage, addiction, etc.
- A charitable trust is a long-term charitable planning tool that can be funded during life or after someone’s gone. There are several kinds, they’re irrevocable once they’re funded, and they all benefit charity in some way, while also having the potential to save significant tax on an estate. (We love charitable trusts. Here’s a whole post about them!)
One estate may incorporate several of these trusts–simultaneously or in succession. For instance, someone may have a revocable living trust that isn’t fully funded until they pass away and additional assets are freed up. At that time, a secondary minor’s trust and charitable trust might be funded to serve more specific purposes long-term.
What is a trustee?
A trustee is a person or corporation named to disperse funds to beneficiaries according to the parameters set forth in the legal trust document.
A quick recap on trust-related roles:
- Grantor/Settlor – the person creating the trust.
- Beneficiary/ies – the person/people who benefit from the trust
- Trustee – the person/organization (or multiple) managing the trust.
These can be the same people, but are not always, and they may not necessarily remain the same for the life of the trust.
What should you do if you’re asked to be a trustee?
- Reach out to an attorney–the one who drafted the estate documents, if possible. They’ll talk you through the trust document, discuss the role/responsibilities, and help shepherd the estate and custody settlement process.
- Determine if you have time/capacity to accept the role–even if you committed to it in the past.
- If you’re a friend or family member, recognize how your relationship with the beneficiary/ies may change.
- Understand what is in the trust, what you’re being asked to manage, and any conflicts of interest that may arise.
- Ensure that the trust-funding assets are secure and that the trust is funded properly. For this step, work with the bank or trust company holding the fund itself.
- Distribute trust funds according to the parameters set up in the trust document.