Making the Right Choice
There are many important decisions to make when considering how to structure your estate. If your estate planning strategy includes the creation of a trust, you will have to choose a trustee to manage the trust property for the benefit of the beneficiaries. The person you select will be legally responsible for managing and distributing the trust assets according to the trust's terms. The selection of the trustee, therefore, is a critical decision in the planning process.
You can choose a family member, a friend, your attorney or an institution to serve as trustee. It is also important to name a successor trustee to take over in case the original trustee cannot serve.
Consider these key points as you select a trustee:
- Will the individual or institution make objective decisions that are in the best interests of beneficiaries and not be unduly influenced by personal feelings?
- Does the individual or entity have the requisite skills, knowledge and experience to administer the trust? For example, investment expertise?
- Will the proposed trustee be available to manage trust assets and attend to the needs of beneficiaries over several years?
- Is the person detail oriented and organized?
- Will their career or lifestyle afford them the time to devote to the responsibilities of being Trustee?
A corporate trustee can provide stability, continuity and experience that an individual trustee may not be able to offer. If you select an individual as a trustee, you may want to consider naming an institution as co-trustee.
A Trustee's Role
Your trustee must have the knowledge and skills to**:
- Plan an appropriate investment strategy to protect beneficiaries' interests
- Make prudent investment decisions
- Maintain records of trust assets and transactions
- Perform ongoing accounting tasks
- Pay bills
- Inventory and change titles of assets, as necessary
- Obtain appraisals, titles, deeds and other real estate documentsv
- Provide account statements to beneficiariesv
- Keep records of taxable income
- Prepare and file annual trust tax returns
- Arrange the transfer of assets
What is a Trust?
A trust is a set of instructions regarding how you would like your assets managed and then distributed to your beneficiaries. This legal document names an individual or entity (the "trustee") who takes legal title to, and manages, the assets you transfer to the trust for the benefit of the persons (the "beneficiaries") you specify in the trust document.
Trusts are created in two ways. A trust may be created and implemented while you are alive (an "intervivos" or living trust), or it may be created through your will at your death (a testamentary trust). A living trust provides instructions for the management of your assets while you are alive, as well as for the management and distribution of your assets at your death. Typically, these types of trusts are revocable, and can be amended or changed at any time before your death. This provides flexibility, because if your personal or financial goals change, you can make changes to your trust.
Because a testamentary trust is created through your will, it is effective only upon your death. As with all estates passing by will, the estate is subject to probate, and at the conclusion of the probate process, the assets are distributed to the trustee. In addition, because it is created at death, the testamentary trust cannot provide for the management of your assets during your lifetime and, therefore, cannot plan for incapacity.
Charitable Remainder Trust (CRT)
CRT's, also called Charitable Uni-Trusts, are irrevocable trusts that provide for and maintain two sets of beneficiaries: income beneficiaries and charities. The income beneficiaries (you and, if married, a spouse) receive a set percentage of income for your lifetime from the trust. The charities receive the principal of the trust after the income beneficiaries pass away. Since CRT's have a charitable intent and do not have to pay capital gains, the full value of any assets transfers to the trust (and thus, to your family and favorite charities). While CRT's are irrevocable, you may change the charitable beneficiaries at any time.
Charitable Lead Trust (CLT)
Like a CRT, CLTs offer current income tax deductions and a reduction of capital gains taxes. The only difference is the CLT flip-flops the parties involved. Charities become the income beneficiaries, receiving a steady stream of income during the owner's lifetime. At the owner's death, named beneficiaries then receive the bulk of the CLT's assets. And just like the CRT, Charitable Lead Trusts also receive the same preferential tax treatment.
The Schenectady Foundation does not provide legal or financial advice, and urges all people interested in developing an estate plan to first discuss their needs and concerns with estate planning professionals, such as attorneys and tax advisors, on the best way to address their particular needs and concerns.
Trustco Bank, a trustee of The Schenectady Foundation, also published a portion of this article in its fall issue of Trustline. The article was prepared by Newkirk,
which specializes in financial communications.
**Note that this may not be a complete list of trustee's duties.