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FAQ

Frequently Asked Questions re: Trusts

Administration and Settlement Following a Death

1. What is a trust?
   
   A trust is when one person (trustee) holds title to property for the benefit of another person (the beneficiary).
   
   A person called the settlor (or trustor) creates the trust and puts the property in the trust.
   
   The settlor, trustee, and beneficiary can be different people. But, one single person could be the settlor, trustee and beneficiary.
   
   For example, one person may create a trust and put property in it, make himself the trustee, and use the property for his own benefit. In that case he would be the settlor, trustee, and beneficiary all at the same time.
   
    
2. What is a trustee?
   
   The trustee is the person (or people) who holds legal title to the property that is in the trust. The trustee’s job is to manage the property in the trust for the benefit of the beneficiaries in the way the settlor has asked.
   
    
3. What powers does a trustee have?
   
   A trustee has all the powers listed in the trust document, unless they conflict with state law or unless a court order says otherwise. The trustee must collect, preserve and protect the trust assets.
   
   To do this, the trustee can:
    
• make reasonable repairs,
• insure the property,
• sell assets,
• make prudent investments,
• pay certain administrative bills and expenses, and
• make distributions and payments to the beneficiaries according to the trust document.

4. What duties does a trustee have?
   
   The law says the trustee must:
    
• Do what the trust document says as long as it is legal;
• Do only things that benefit the beneficiaries;
• Not favor one beneficiary over another;
• Avoid conflicts of interest with the beneficiaries
• Never use trust property or the trustee's powers for personal benefit, unless the trust authorizes it;
• Keep trust property separate from property owned by anyone else;
• Not delegate to others anything they can reasonably do themselves. If the trustee must delegate some duties, s/he must supervise what the delegated person does;
• Administer and invest the assets of the trust with care and skill to protect the trust;
• Diversify investments unless it would not be a good idea to do so;
• Keep detailed records and give periodic reports to the beneficiaries as required by state law.
• Distribute the income as required by the trust and/or by law.

5. When the settlor dies, the trustee has other duties:
   
   Notice to beneficiaries and heirs: If the trust is irrevocable when the settlor dies, the trustee typically has a prescribed period of time after becoming trustee or  after the settlor's death, whichever happens later, to give written notice to all beneficiaries of the trust and to each heir of the decedent.
   
   The notice typically must provide this information:
    

·         The settlor's name and the date the trust was signed;

·         The name, address and telephone number of each trustee of the trust;

·         The address where the administration of the trust will take place;

·         Any information the trust document asks for;

·         That beneficiaries can ask for a complete copy of the trust; and

·         That beneficiaries may have a deadline after getting notice to start a legal action to object to the trust, or after a copy of the trust is mailed or served upon the recipient, whichever is later.

For more information, consult a qualified estate planning professional.

Notice to Assessor's Office: If the trust property includes real estate, the trustee may have to give written notice to the Assessor's Office of the county where each parcel of real estate is.

Inventory and appraisal: If there is no court-appointed executor for the estate of the deceased settlor, in most case the trustee must make an inventory and appraisal of all the settlor's assets as of the date of death (whether or not the assets were in the trust). The trustee does this to see if federal and state estate tax returns need to be filed. If they do, the trustee will apply to the Internal Revenue Service for new tax ID numbers for the trusts and make sure the returns get filed and any taxes owed get paid within 9 months of the settlor's death.

If the settlor was acting as trustee of his or her own trust, the new trustee (called a “successor trustee”) will also sign an Acceptance of Trusteeship.

Follow trust instructions: The trustee also must do anything the trust instructs. Often, the trust says the successor trustee will take care of paying for the settlor's funeral expenses, the settlor's outstanding debts (like, recent medical expenses and credit card bills), and then distribute what is left to the beneficiaries of the trust.

Sometimes, the beneficiaries have the right to get most or all their inheritance through the trust within days or weeks of the settlor's death.

In other cases, the trustee may delay distributing property to:
 

·         Sell property to pay the settlor's final bills or taxes,

·         Calculate the distribution required by the trust, or

·         Determine if there will be other debts or taxes to pay at a later date.

Some trusts say the trustee cannot distribute the assets for a certain number of years, or until the death of someone else. In these cases, the trustee is responsible for investing the assets of the trust, perhaps making periodic distributions to the beneficiaries, until all assets of the trust are distributed to the beneficiaries.

6. What is a trust "beneficiary"?
   
   A beneficiary of a trust is a person who by the terms of the trust has the current or future right to have the trustee pay out cash or other trust property to him or her. He or she is one of the people for whom the trust was established.
   
    
7. What rights does a beneficiary of a trust have?
   
   Unless the trust is revocable by someone else (like a revocable living trust while the settlor is still alive), the beneficiary may have the following rights, in addition to any rights listed in the trust:
    

• The right to receive notice of the existence of the trust.
• The right to receive a copy of the trust.
• The right to receive trust accountings and information about the beneficiary's interests in the trust.
• The right to enforce the terms of the trust and to hold the trustee accountable for any wrongful acts or omissions that affect that beneficiary's interests.
   

8. When does a trust end?
   
   Unless it has been legally revoked, a trust usually ends only when the trust document says it will end. Trusts usually end when the settlor dies or when one of the beneficiaries dies. But, sometimes a trust ends after a certain period of time or after a certain event takes place, like when a beneficiary gets married or reaches a certain age.
   
   But there are other reasons a trust can end. Here are some:
    
• The term of the trust expires,
• The trust purpose is fulfilled,
• The trust purpose becomes illegal,
• The trust purpose becomes impossible to fulfill, or
• The trust is revoked.

If the trust ends, the trustee will continue to act as trustee until s/he finishes up the affairs of the trust.

9. Can a trust be cancelled or amended?
   
   Unless the settlor made the trust irrevocable when s/he created the trust, the settlor can cancel or change the trust. Even if a trust is irrevocable, it is possible that it can be changed in one of the following situations:
   
   If all beneficiaries consent
   If all beneficiaries consent, they may be able to petition the Court to change or end the trust.
   
   The Court will consider:
    
• if the trust must continue in order to carry out the purpose of the trust
• if the reason for changing or ending the trust outweighs the interest in carrying out the purpose of the trust

If the settlor and all beneficiaries consent
If the settlor and all beneficiaries consent, they may be able to change or end the trust.

If any beneficiary does not consent to change or end the trust, the other beneficiaries, with the consent of the settlor, can petition the Court to partially change or end the trust as long as the interests of the beneficiaries who do not consent are not seriously affected.

If the trust has uneconomically low principal
If the Court decides it is costing more to administer the trust than the trust is worth, the beneficiary or trustee can ask the Court to end or change the trust, or appoint a new trustee.

If the trust principal is “uneconomical,” the trustee can end the trust.

Change or end the trust if circumstances change
The Court may change or end a trust if circumstances have changed and continuing the trust would defeat or weaken the trust.

 10.  What if the acting trustee dies or resigns or can no longer be the trustee?

If a trustee dies or resigns, is conserved or is declared “incompetent” by a court, or files for bankruptcy, then the trustee can no longer act as trustee and must be replaced.

Some trusts have 2 or more co-trustees and the trust may say that the remaining co-trustee will be the sole trustee, or may say how a new trustee will be appointed.

If the vacancy cannot be filled, then a trust company may agree to serve if all adult beneficiaries agree. If that fails, any person who has a financial stake in the trust or any person named as trustee may be able to file a petition to have a trustee appointed.

Typically, beneficiaries can also nominate a trustee, depending on age and capacity.