Here’s what we cover:
The trustee is the legal owner of assets. If more than one trustee is acting, the trustees own the assets with survivorship rights similar to those of joint tenants. Property held in the name of trustees will pass to the surviving trustee and any successor trustee upon the death of a trustee. If more than one trustee is acting, the trustees must act together unless otherwise expressly provided by the trust agreement. A trustee is not acting as the agent of the beneficiaries of the trust. A trustee’s actions are his own and he is responsible for them.
Of critical importance in the creation of a trust is the trust agreement. The agreement instructs the trustee on how to manage, administer, and dispose of the assets which are transferred to the trust. These guidelines are directed primarily at the revocable trust situation, where the trust was created by the settlor primarily to avoid probate, and the settlor is the trustee or co-trustee (often with another family member) and is also the primary beneficiary during his lifetime. As settlor and trustee of this type of trust, the settlor’s wishes as to the management and disposition of the trust assets will control during his lifetime. Nevertheless, there are certain basic obligations, such as the duties to keep records and to segregate trust property, and file any required tax returns. The exercise of these functions reflects the fact that the settlor intends the assets to be part of a trust arrangement under which other parties have present or future interests.
The settlor should keep good financial records, whether his investments are held in his name or in trust. If the settlor has good records, this should not increase his workload. Even where the settlor is the trustee for his own benefit, a trust cannot be set up and funded and then forgotten.
The trustee has a responsibility to keep accurate records concerning the trust assets. He should set up books (with the help of an accountant, if necessary) to identify
- income received
- income paid out
- additions to principle
- deductions from principal
- principal on hand
- changes in trust investments.
How to Administer a Trust
All transactions involving assets should be carefully documented. When records are originally set up, the cost basis of all assets transferred to the trust should be determined. It is much easier to obtain this information while the settlor is alive and his records available than to try to track down the information when the assets are sold or otherwise transferred. In addition to satisfying the trustee’s legal responsibilities, accurate books and records will make the successor trustee’s job much easier.
The above article is an excerpt from Estate Planning in Arizona: What You Need to Know, 2nd Edition (Wheatmark, 2019), by Donald A. Loose, republished with the author’s permission.
Disclaimer: Laws change constantly. Specific legal advice should be obtained regarding any legal matter. The information contained on this website does not constitute legal advice and no attorney-client relationship is created.
Don likes to target shoot, scuba dive, and pilot airplanes. Most recently, he has been working on his golf handicap. Don enjoys writing, reading, and spending time with his wife, twin sons, and golden retriever, Lucy.