For the First-Time Trustee
(Even If You’ve Been Trustee Before)

You are in a place of special confidence and yes, trust. You are a “fiduciary.”

Both confidence and fiduciary (and even the marine motto, semper fidelis) share the same root: “fid,” meaning faith, belief, trust, confidence, pledge. You are pledged to do something for someone else.

You are one of three parties to the Trust for which you have assumed responsibility. The other two are the Grantor (sometimes called “Settlor”), and the Beneficiary. The Grantor is probably your friend or relative who asked you to serve. The Beneficiaries are the people you are to protect. So you are “faithful” to the “trust” both other parties have placed in you. You are trustworthy and faithful, aren’t you?

Here is a short checklist of some key things you need to do to make your work as Trustee fruitful:

Read the Trust. This sounds simple and it should not have to be said, but it is where I go first, and last, when I am helping someone be Trustee.

This means the whole Trust document, yes, all 34 pages of it. Yes, all the legalese. These things tell you what you must do, what you can do, and what you cannot. Attention must be paid.

Find out about your beneficiaries. Visit them and visit with them. Find out their hopes and dreams as well as their needs. Do this often.

Some trusts say you must do things quarterly or annually, and how are you going to do these things if you are out of touch?

Find out what assets, income and expenses your Trust has.

This means you need to get appraisals as of the day the Trust started. Why? To establish tax basis for a sale that might take place this year or next or not for 30 years. Also, to protect yourself if someone should say you let the asset decline in value and they want to sue you. And to determine the amount of insurance you need to have the Trust buy.

Make sure insurance is in place on all assets, such as homes, buildings, vehicles, even investments (remember FDIC for bank accounts, for instance).

In some states you will have to post a bond before you begin serving. The cost is usually paid by the Trust, but the application is some work for you. Ask your attorney.

Set up separate bank and brokerage accounts for the Trust. Never mix your money in with the Trust’s, not even for a second! Nor can you use the Trust assets for your needs, nor borrow money from the Trust (say it’s an emergency—not even then can you use Trust money for yourself, even if you plan to put it back.)

When the Trust starts, you will probably have to obtain an Employer Identification number from the IRS. (Banks need the number to open an account). This might be a good time to get a CPA and an attorney involved to make sure you really have to get the number and establish a relationship with someone you can trust for guidance.

They can make your job so much easier.

Some of the questions that beneficiaries can raise to you can be tough questions ethically, financially, emotionally, and legally. Stay on the high road from the start.

Can you or should you buy a house for a beneficiary, or a car, or pay for a medical procedure? Get some help so you get it right.

Remember that normally these advisors are an ordinary and necessary expense of the Trust, so the Trust most often will pay the costs. Pinching pennies here is a bad idea.

Collect all the brokerage, bank and other statements sent you. You will have to do tax returns for the Trust, both federal (Form 1041) and State (Indiana for instance has an IT-41). In some cases you might even have to file a Federal Estate Tax Return (Form 706).

Annually or more often you need to account to all of the beneficiaries for every penny in and every penny out. You might in some cases have to give the accounting to a court.

Before you file your tax returns and accountings, read the trust. Yes, you know what’s in it. Yes, this will reconfirm to you that you did everything right (or give you a chance to correct things).

You must treat each beneficiary equally. Sound easy? It can be a subtle issue: if you buy this for the person who is the beneficiary now, it means less money for the person who gets what’s left after this beneficiary dies or reaches a certain age. Get advice.

You must invest the money prudently. No high fliers. No risky investments. But you cannot just leave cash in a safe deposit box or even a simple passbook or low or no interest bearing account.

Can you get paid for your work as Trustee? Read the Trust. You probably can. Just keep the charges reasonable and in line with what banks and other professional fiduciaries charge.

If this is a trust for a beneficiary who is on SSI, Social Security Disability, Medicaid, or living in subsidized housing, or the like, get an Elder Caring Attorney involved.

There are traps here for you as Trustee and your beneficiary, both within these programs (think the tax rules change a lot? These rules change even more often!). If you trip, it could cost your beneficiary and the Trust—and you—Thousands.

For instance, there are things you can buy or pay for, and things that you should not.

Ultimately, being Trustee can be a big responsibility. It can also be very rewarding: knowing you were trusted, that you lived up to that trust, and you did something that helped several other human beings.

Read the Trust.

Questions? Give me a call (574/291-0022) or send me an email (mailto:[email protected])

For the First-Time Trustee

For the First-Time Trustee (Even If You’ve Been Trustee Before)