Group photo of attorneys

What is Trust Administration?

Trust administration is the management of a trust estate and the eventual transfer of the property held in trust to the beneficiaries set forth in the trust agreement. Most trusts are used as a vehicle to escape the probate administration, and avoid the time-consuming process of distributing assets through the probate court.

The person who distributes the property of the decedent is known as the “trustee”. The trustee is responsible for gathering the decedent’s assets which have been placed in the trust, and notifying the beneficiaries of the trust. The trustee can either be and individual, or a corporate entity (like a bank), whom is named by the decedent in the trust documents. The trustee can be held liable for any mistakes made with the handling and distribution of trust assets, and the trustee must be conscious of all the decisions they make while administering the trust.

The trustee, whoever it may be, has a variety of duties and responsibility. The trustee must settle all the decedents debts and liabilities, file appropriate tax returns, and keep proper records and accounts for each action the trustee takes. This includes opening a properly titled trust account with a financial institution to hold trust assets, hiring proper professionals for assistance (like accountants, realtors, and attorneys), and obtaining and transferring legal title to real estate and personal properly. The trustee can only distribute the trust assets to the beneficiaries only after all this has been achieved.

Trustee Duties

A Trustee must follow a variety of duties when administering the trust. If not the trustee breaches these duties, he can be held liable for any loss obtained by Trust and be removed from his position as a trustee. The following are the duties every trustee must adhere to for actions taken on behalf of the trust:

Duty of Prudence:

The most important duty of trustees is to be prudent with any actions taken on behalf of the Trust. Particularly invoked when making investments with trust assets, the Trustee must administer the Trust with a degree of care, skill and caution. The trustee’s personal skills are considered when determining what a “prudent person” would do. Usually this duty is covered by hiring professional to assist the trustee, such as accountants, investment advisors, and attorneys.

Duty of Impartiality:

When distributing trust assets, the Trustee must be impartial as to the beneficiaries. The Trustee has a duty to balance in interest of current against those of future beneficiaries. The trustee must consider the facts and circumstances surrounding each group of beneficiaries when making distribution decisions. However, the Trustee is only required to treat the beneficiaries fairly, but not necessarily equally. This duty can also apply to the Trustee’s investment decisions.

Duty of Loyalty:

In 1928, Justice Benjamin Cardozo explained “a trustee is held to something stricter than the morals of the marketplace. Not honesty alone, but the punctilio of an honor the most sensitive, is then standard of behavior.” In layman’s terms, the trustee must be loyal to the beneficiaries, and has a duty to act solely, in the interest of the beneficiaries. The trustee cannot have any self-interest in the trust assets, and cannot profit in any way shape or form from being a trustees, except in the payment of reasonable trustee’s fees. For instance, if Bill Gates was named trustee to Steve Job’s Trust, Bill could use trust funds to invest in Microsoft stock, no matter how safe an investment it might be.

Duty not to Delegate:

The trustee has a duty not to delegate acts he or she could reasonably be required to perform. For instance, imagine the Trustee is a professional stock broker. Instead of investigating stock to invest trust funds, he blindly follows the suggestion of a co-worker to invest in an up-and-coming stock. Instead of researching the history of the stock and the company it represented, the Trustee invests in the stocks purely on recommendation. Because the trustee did not properly investigate the stock, although he had the ability and knowledge to determine if the stock was a sound investment, the trustee breached his duty not to delegate.

Any and all of these duties can be waived or modified under the trust document. When an estate is small, and the trust is used primarily as a vehicle to escape probate, many of these duties can be relaxed. However, for significant estates, these duties can be used to hold Trustees to a high standards to ensure proper management of the Trust and its assets. Make sure to thoroughly review the trust documents to understand what duties are placed on the trustee.

Advantages of Trust Administration

Using a trust can avoid the hassle and costs of going through the probate process. The distribution of the decedents assets can be quicker. If a decedents estate is opened in the probate court, the decedent’s property cannot be distributed for at least six (6) months. This is because Illinois law requires the decedent’s estate to be subject to the claims of the decedent’s creditors. Additionally, trust administration gives a greater level of privacy, because there is no court supervision of the process, and the trust documents are not available to the general public. Another appealing aspect of trust administration is it is generally less costly. Probate is not a cheap process, when you factor in filing fees, court costs, and attorney fees, the numbers can add up quicker than expected.

Disadvantages of Trust Administration

The lack of court supervision can also be considered a disadvantage. If a dispute arises among beneficiaries (or a disinherited child), it is difficult to resolve without court supervision. Further, creditors of the decedent may have a longer time to file claims against the estate. Trusts do not receive the same creditor protection as probated estates, where creditors ability to file claims against the decedent’s estate is cut-off after the required Illinois creditor claim period. Consider the common types of trust litigation to help decide the powers and duties you plan to give your trustee.

Properly drafting your Trust is a rigorous undertaking, full of complexities and requirements best left to experienced Chicago estate planning lawyers. Whether you are a trustee trying to understand their duties, or preparing your own trust, or the beneficiary of a trust, contact Attorney Michael Rizo for a free consultation to help you with any of your trust or estate planning questions or needs.