When creating an estate plan or providing for another during life, one often considers creating a Trust. Trusts can be drafted for many different reasons and with various types of beneficiaries and Trustees. An important question to discuss with your legal advisor is who should act as Trustee.
Many financial institutions and trust companies are willing to act as Trustee of your trust. These organizations can provide a great solution to the issue of who to name as Trustee. Sometimes, however, the grantor, or the person authorized to appoint the trustee, would prefer that an individual serve as a trustee. If you intend to appoint an individual trustee, it is important that you consider whether that person has the time, energy and skills to serve in such a role.
A Trustee must demonstrate great responsibility in all aspects of Trust operation. A Trustee has the duty and responsibility to administer the trust as directed by the trust document and in accordance with state laws. In Florida, if there is any inconsistency between the terms of the trust and the statutes, the terms of the trust will generally control. However, if the Trustee is unsure what authority controls he or she should review this potential conflict with us or other legal counsel before taking any final action.
A Trustee has a basic duty of loyalty to the beneficiaries. A Trustee must ignore all personal interests and any interest of third parties and administer the trust solely in the best interest of the beneficiaries. As Trustee, one is expected to act faithfully to protect and further the interests of the beneficiaries, perform selflessly and not abuse or take advantage of the position of Trustee.
Florida laws require a Trustee act as a prudent investor of trust property. A Trustee must invest, diversify, retain original assets and manage assets, considering the trust portfolio as a whole, in a manner that is consistent with the purposes, terms, distribution requirements and other circumstances of the particular trust. This duty begins as soon as the initial assets are received by the Trustee. The Prudent Investor Rule requires a Trustee to consider the level of risk, production of income, safety of capital and the expected return in the investment of the total trust estate. If a Trustee chooses to delegate investment functions to another, the procedure set forth in Florida statutes must be carefully followed to minimize the Trustee’s exposure to liability.
All trust records are important for legal and tax purposes and need to be retained in an orderly fashion. Reasonable record keeping is an inherent part of all Trustee duties. It is imperative that Trustee actions are documented clearly. We can provide an individual trustee a Record-Keeping memorandum outlining important trust documents to retain.
Florida Statutes require that a Trustee notify or account to certain beneficiaries or the grantor at different times and with different types of information. A Trustee must notify both the current and remainder beneficiaries of the Trustee’s acceptance of the office of Trustee and provide accountings annually, at termination, or upon the change of the Trustee. The rules regarding the content and timing of accountings are set forth in Florida statutes and require fairly detailed accounting statements.
Florida statutes generally restrict a Trustee’s personal liability for contracts entered into in a fiduciary capacity, unless he or she fails to identify himself or herself as acting in a fiduciary capacity. Moreover, Florida statutes generally restrict a Trustee’s personal liability for his or her actions, unless he or she is personally at fault. A Trustee should always sign documents executed on behalf of the trust as Trustee. A Trustee’s signature should specifically reference the trust agreement empowering such Trustee to act.
In addition to obligations under the Trust Agreement and state trust laws, there are certain tax returns that will be required for the trust. A Trustee has the responsibility to prepare and file a Trust income tax return for each year of the trust. In some circumstances, the Trustee must file an intangibles tax return for each year of the trust.
Acting as Trustee under a trust agreement is not a passive position, but rather an active position that requires documentation, organization and an awareness of obligations under both the trust agreement and state laws. It is important that you discuss with your legal advisor what entity or individual is best suited to serve as your Trustee based upon your individual circumstances.