The purpose of this outline is to provide an overview of concepts germane to the subject. None of the information contained herein should be relied upon as legal advice nor should it be relied upon to resolve an individual legal problem.

 

 

The following is an overview of the responsibilities of a trustee regarding the administration of a living trust.

 

Trusts

A trust is a legal document which defines the relationship between three (3) parties; a “settlor” (the person who creates the trust and transfers assets into the trust), a “trustee” (the person who holds the trust assets and is bound by the provisions of the trust regarding the administration and distribution of trust assets) and the “beneficiaries” (the persons for whom the trust is designed to provide a benefit usually in the form of distributions of cash or other assets).

 

Living Trust

A living trust is created by the settlor during the settlor’s life and actually exists during the life of the settlor.  In other words, a living trust is not a trust which is part of the settlor’s last will and testament and therefore, becomes funded only following the death of the settlor.  The settlor of a living trust often serves as trustee of the living trust during his or her life.  During the settlor’s life, the settlor is usually the sole beneficiary of the living trust as well.  In addition, the settlor usually retains the right to amend or revoke the living trust at any time during life, and all trust assets can be withdrawn or taken out of the living trust at any time by the settlor.  During the settlor’s life, the living trust is simply a different legal form of ownership.  The main advantages

of the living trust are to avoid probate of assets owned by the trust upon the death of the settlor and to provide continuity of management of assets during a period of incapacity.

 

A living trust always names a successor trustee to serve upon the death or incapacity of the settlor.  The successor trustee steps into the shoes of the initial trustee and administers and distributes the trust assets according to the provisions of the trust which typically specify exactly what happens to the assets of the trust following the settlor’s death.

 

Responsibility of a Successor Trustee

A person who is appointed trustee of a trust takes on the duties and responsibilities of a fiduciary. A fiduciary is responsible for carrying out the intentions of the settlor as specified in the trust document.  The trust document is a legal document which provides the necessary instructions to the trustee regarding administration of trust assets and distributions of trust assets to beneficiaries.  The trustee holds the trust assets in a position of trust for the trust beneficiaries.  The law charges the fiduciary with certain responsibilities in handling trust assets, and the fiduciary can be held personally liable if those assets are managed improperly.

 

The fiduciary is under a duty of keeping his or her personal affairs and fiduciary responsibilities separate.  This means that the trustee must not commingle trust funds with his or her personal funds and must never use trust funds for personal use.  The trustee must act fairly and impartially in carrying out the terms of the trust and should never favor one creditor or beneficiary over

another.  The trustee is responsible for investing the assets of the trust in a manner which is consistent with the objectives of the trust.

 

The trustee is usually responsible for accounting to the trust beneficiaries on an annual basis as to all matters of income and expenses incurred by the trust, the amount of any distributions to beneficiaries and the remaining assets on hand.  One of the advantages of a living trust is that no formal accounting is required to be filed in the Probate Court.  Generally speaking, the Probate Court system is not involved in the trust administration process unless a beneficiary or other interested party demands court intervention.

 

Income Tax Reporting

The trustee is responsible for filing all required income tax returns for the trust on an annual basis.  Income tax returns report all income, expenses and distributions of trust assets to the Internal Revenue Service and State of Connecticut Commissioner of Revenue Services.  The trustee is usually empowered to hire a tax return preparer to prepare and file all required tax returns.

 

Professional Assistance

When a trustee serves as a co-trustee with another party, the duties and responsibilities of one trustee can be allocated per agreement between the two trustees.  It is not uncommon for a trustee to serve as a co-trustee with a surviving spouse or institution with the primary responsibility for investments and other administrative matters being born by the surviving spouse or institution.  In addition, the trustee typically has the authority to retain the services of an investment advisor to assist with decisions regarding investments.

 

Compensation to Trustee

A trustee is entitled to “reasonable” compensation for managing and administering the assets of a trust.  In Connecticut, what is “reasonable” depends on a variety of factors including the time and effort involved in managing the trust assets, the level of experience of the trustee in administering trusts, the nature of the assets of the trust, etc.  It is not uncommon for persons to select family members as trustees on the assumption that the family member will provide services to the trust gratuitously.