Guidance Every Step of the Way: Boca Raton Trust Administration Lawyers
Our experienced Boca Raton trust administration lawyers provide legal guidance to successor trustees who must administer an estate. Probate is generally not required if the decedent had a properly drafted and funded trust. Nonetheless, the successor trustee must take certain steps to administer the trust.
These steps include:
- Contacting beneficiaries and keeping them informed;
- Gathering and investing the trust-maker’s assets;
- Notifying potential creditors;
- Paying debts;
- Filing tax returns; and,
- Distributing assets and/or income to beneficiaries in conformity with the trust’s provisions.
Our experienced attorneys will assist successor trustees who lack the time, resources or knowledge to personally deal with the complexities of trust administration.
The Duties and Liabilities of a Trustee
The responsibilities placed upon the individual placed in the role of trustee under Florida law are tremendous. Trustees are given much power and with that power, the law imposes many protections against the possible temptations to abuse that power that might arise. Under the Florida Trust Code, trustees are fiduciaries with established duties (Florida Statutes §§736.0801) and corresponding liabilities (Florida Statutes §§736.1001 et seq.).
Under Florida law “… upon acceptance of a trusteeship, the trustee shall administer the trust in good faith, in accordance with its terms and purposes and the interests of the beneficiaries, and in accordance with this code.” (Florida Statute §736.0801) This must be done “… solely in the interests of the beneficiaries.” (Florida Statute §736.0802) Accordingly, once the trustee accepts the position, he agrees to act against his own self-interests if need be, in order to administer the trust for the beneficiaries’ benefit.
The trustee acts in allegiance and loyalty to the beneficiaries of the trust, and failure to meet his fiduciary duties can expose the trustee to personal liability. Accordingly, it is extremely important for a trustee to seek experienced legal guidance in the carrying out of his work as trustee in order to avoid or limit exposure of his personal assets to claims by the trust beneficiaries in any breach of fiduciary cause of action.
Trustees must follow the dictates of the trust instrument itself as well as federal and state law. Conflicts arising between the law and the language of the instrument must be resolved; sometimes, this may involve the filing of a lawsuit by the trustee specifically to obtain judicial resolution of the dilemma. (For the trustee to make the call on his own might expose the trustee to personal liability.)
During the course of his tenure as trustee, periodic communications with the beneficiaries by the trustee are extremely important. Keeping the beneficiaries “reasonably informed” is legally required, but what is “reasonable” will be dependent upon the individual circumstances. Also, the trust may not delineate guidelines for updating or informing those benefiting from the trust of the decisions and actions of the trustee, but the prudent trustee is well-advised to communicate often and in detail with the beneficiaries of the trust. Written communications serve everyone well, and any conflicts or confusion that arise from these updates can be resolved expeditiously with the assistance of legal counsel, if need be.
Each year, the trustee will also be required to give a full accounting of the trust (assets, liabilities, revenue received, payments made, etc.) to the beneficiaries. This cannot be waived by the trustee; it is required by law that this annual accounting be performed.
Finally, while the trustee is required to undertake as much of the administration as possible personally, this does not prohibit the trustee from seeking the assistance of professionals, including accountants, bookkeepers, and attorneys to assist the trustee in the performance of his duties. Given the personal exposure a trustee undertakes when accepting the job of trust administration, most trustees do engage experienced trust planning and trust administration attorneys to assist them in their efforts.
Successor Trustee’s Duties
Below is a summary of the basic obligations of a successor trustee of a living trust.
- Show loyalty of all trust beneficiaries. Even if the successor trustee is himself a beneficiary, as trustee he has the duty of loyalty to all the other beneficiaries, including the remaindermen.
- Deal impartially with beneficiaries. The successor trustee cannot favor the income beneficiary over the interests of the remainder beneficiaries.
- Make the trust property productive of income. This duty is violated if the successor trustee keeps large amounts in a checking account that does not pay interest and does not grow in value. There may be other trust assets which do not produce income, such as vacant land. If you are administering a trust that has or acquires unproductive assets, consult with our Boca Raton trust administration attorneys and we can advise you as to your options.
- Invest only in prudent investments. Florida has adopted the prudent investor rule, Florida Statute Sec. 518.11, which requires:
- Consideration by the trustee of the purposes, terms and other circumstances of the trust.
- Exercise reasonable care and caution as part of an overall investment strategy which incorporates risk and return objectives reasonably suitable to the trust.
- Diversity of investments, unless specific reasons are present not to diversify.
- Review at investment and implementation of a formal investment plan.
- An investment strategy that considers both the reasonable production of income and safety of principal, consistent with the fiduciary’s duty of impartiality and the purposes of the trust
- Account to beneficiaries and keep beneficiaries informed. Upon commencement of the trust administration, the successor trustee must inform all income and remainder beneficiaries of his acceptance of the trust. If a beneficiary requests it, the successor trustee is required to provide that beneficiary with a complete copy of the trust document, including any amendments as well as relevant information about the assets of the trust and the particulars relating to administration. In addition, even without request, all beneficiaries must be provided with an annual statement of the accounts of the trust.
- Keep trust assets separate. The successor trustee must keep the assets of each trust separate and keep his personal assets separate from the trust assets. This requires separate bank accounts, brokerage accounts, and safe deposit boxes for trust assets. It is particularly important that you keep the assets of the Credit Shelter Trust separate from all other assets, since these assets will pass tax-free at the death of the income beneficiary. If the successor comingles any other assets in with these assets (or even simply takes the assets out of the trust and mixes them with his personal assets), in addition to breaching fiduciary obligations, the successor trustee will have subjected these assets to taxation when he dies, whereas they would not have been subjected to tax otherwise.
- Avoid conflicts of interest and self dealing. The successor trustee cannot buy assets from the trust or sell his personal assets to the trust. He cannot favor himself as a beneficiary at the expense of any other remainder or potential remainder beneficiary. He cannot make any distribution to anyone or any withdrawals from the trust unless specifically authorized by the trust to do so. Conflicts of interest and self-dealing is a very broad and ill-defined area. If you are a trustee and have any concern as to any specific action or situation, consult with our Boca Raton law firm.
- Preserve the trust assets and uphold the trust. The successor trustee is liable if trust assets are lost, misplaced or destroyed because of inattention or negligence. The successor trustee should always be certain that all trust assets are appropriately insured.
- File tax returns and pay any tax due. Each trust has a tax year, which like the personal tax year, ends annually on December 31. The trust must have a taxpayer identification number and file a tax return no later than April 15 of the year following. The income tax return for the trust is Form 1041, the Fiduciary Income Tax Return. If this is not filed annually and timely, penalties and interest may be assessed. There may be other tax returns and taxes, like the decedent’s personal tax return, which the trust may be required to file, and the successor trustee is responsible for doing so.
- Distribute income. Income generally includes interest earned on bank accounts, CD’s, bonds or mortgages, and dividends on stocks and mutual funds. The current income beneficiaries are entitled to all of the income annually. Beneficiaries cannot choose to take less than all of the income, and the trustee is under an obligation to distribute it. What is income? Generally, it includes interest earned on bank accounts, CD’s, bonds or mortgages, and dividends on stocks or mutual funds. Certain types of income may also consist of principal as well as income. If this is the case, the portion that is income is distributed and the portion that is principal is retained. If there is any question about what is principal and what is income, consult with the trust’s CPA.
- Handle trust expenses. The administration of the trust necessarily requires certain expenditures. Example of expenses include CPA fees, legal services, the cost of insurance or real estate taxes on real estate owned by the trust. Every check written by the successor trustee (except to pay himself trust income) and each direct charge to a trust’s bank or brokerage account, is considered a trust expenses. Like receipts, expenses must also be appropriately apportioned between the income side and the principal side.
- Delegate investment functions if necessary. In many instances, individual trustees are not equipped to comply with their investment responsibilities. In these cases, investment professionals may be retained. The successor trustee is obligated to exercise reasonable care, judgment and caution in selecting an investment agent. Trust administration specialists may be found through brokerage houses and banks. Note that “delegating” differs from merely obtaining investment advice. It contemplates turning over the investment functions to an advisor as opposed to simply seeking advice, and then acting or not acting on that advice. Even if investment functions are fully turned over to an agent, the successor trustee is still required to monitor the agent’s investment performance.
- Good record keeping. Keeping accurate, up-to-date and comprehensive records is one of the most difficult jobs a successor trustee must perform. If the successor trustee becomes disabled or dies, another person must be able to seamlessly step into his shoes and understand the current status of trust matters. Trust records are also vital because the trustee must be able to explain any trust matter if the IRS or remainder beneficiary requests it. The CPA selected to handle the trust can be very helpful in setting up a sound accounting and record-keeping system. If keeping records is too burdensome for the successor trustee, The Karp Law Firm can be retained to provide this service. A trust department of a bank may also perform this function.
- What is a trust?
- Who should have a trust?
- What is the difference between a will and a trust?
- If I set up a living trust, do I still need a will?
- What types of trusts can I set up?
- What is the difference between a revocable trust and an irrevocable trust?
- How do I know that my trustee will do as I direct in the trust?
- Will a will or trust govern the disposition of all my property?
- Do I have to use an attorney for my trust? How much does it cost?