Fear of the unknown is one reason why people, who have never been responsible for a trust, might feel uneasy. As reported in WTOP’s article, “7 questions to ask when taking control of a trust,” if you are the trust beneficiary, having access and control of more wealth seems like it should be an easy change to get used to. However, the increased wealth comes with increased risk and responsibility -- and if you are administering the trust for the benefit of persons in addition to or other than yourself, you have the highest duty under law, a fiduciary duty, to the beneficiaries. To get more accustomed to this new position, start with the fundamental questions:
What are the trust’s rules? There are different types of trusts, each with its own set of legal rules. Many are extremely complex. Therefore, you should work with a trust attorney to be certain you’re doing things right. You should also look at the trust agreement or the will provisions that established the trust. This will give you the instructions for managing, investing and distributing trust assets. It will also detail your powers and how you can use the funds.
What’s the history of this trust? If more information is needed on the history or intentions behind the trust, talk to the advisers who are involved with the trust. This can give you a sound history on how the trust has operated in the past.
How are the trust funds invested? Investors should know what assets they own and why. This also applies to trust assets. Once you establish an appropriate asset allocation for the trust, you may want to have an investment policy statement to ensure that the ongoing management of your assets coincides with your intended allocation, risk tolerance, and objectives. As a trustee, having a written investment policy statement is a good practice, if not a necessity.
What about taxes? If a trust earns income, it will likely be subject to income taxes. Taxation of trusts can become extremely complicated, so work with a tax attorney and CPA on this.
What protection is there from creditors or a divorce? There are some trust structures that increase your odds of shielding assets from a potential lawsuit. This is an issue that should be raised in the estate planning process, as a trust is being created, but it is not always addressed.
Who would be the beneficiary of this trust if I die? When a trust is first established, the original grantor may designate the next beneficiary if you pass away. However, if a successor beneficiary isn’t stated in the trust, you need to consider how this asset affects your existing estate plan and change your documents to direct the asset at your death.
How can I monitor the trust? Depending on the complexity and value of the trust, you may want to have a team of advisers to help you. Think about the information you’ll need to assess the performance of the trust assets and the quality of the advice you’re getting.
Inheriting a trust can be a life-changing event for you and your family. Don’t feel you have to go it alone—your estate planning attorney will be able to help. You and your family should enjoy the new opportunities and the security that the trust provides.
Reference: WTOP (April 18, 2018) “7 questions to ask when taking control of a trust”