How Does Trust Administration Work?Trust administration refers to a handful of tasks involved with (1) investment of trust assets, (2) disbursement of trust assets, as well as (3) ongoing trust management – all in compliance with the terms of the trust instrument. Depending on how you have set up the trust, trust administration can be simple or complicated. In some complicated cases, administering the trust may take significant time and expense, involving various actions and maintenance over a course of years. Trust administration requires a wide range of competencies, from skillfully reading the trust instrument, to intelligently investing the corpus of the trust. You can sometimes engage a bank, trust company, or certified public accountant to fill this role. Other times, you may wish to hire an estate planning attorney as a “one stop shop” for both legal guidance and trust administration. We are proud to offer two types of service in this regard:
- We can advise the trustee regarding his, her, or its duties, rights, and obligations with regard to managing the trust.
- We can serve as trustee, and can often provide a fee structure that is less expensive than the fee structure proposed by a bank or trust company (especially if the trust is a trust that we have drafted and are familiar with).
Types of TrustsThere is a wide range of trusts for various purposes, including:
- Marital trust
- Life insurance trust
- Generation-skipping trust
- Charitable trust
- Special needs trust
- Revocable trusts
- Irrevocable trusts
- and other types of trusts
Can a Trustee be Removed for Mismanagement?Yes! As we discussed earlier, a Trustee of a trust serves under a fiduciary duty to the beneficiaries of that trust. A fiduciary duty is defined as “When someone has a fiduciary duty to someone else, the person with the duty must act in a way that will benefit someone else, usually financially. The person who has a fiduciary duty is called the fiduciary, and the person to whom the duty is owed is called the principal or the beneficiary. If the fiduciary breaches the fiduciary duties, he or she would need to account for the ill-gotten profit. The beneficiaries are typically entitled to damages.” Source: Cornell LII Legal Encyclopedia: Fiduciary Duty. Accordingly, the Texas Trusts Code (Texas Property Code) §113.082 provides that:
(a) A trustee may be removed in accordance with the terms of the trust instrument, or, on the petition of an interested person and after hearing, a court may, in its discretion, remove a trustee and deny part or all of the trustee’s compensation if: (1) the trustee materially violated or attempted to violate the terms of the trust and the violation or attempted violation results in a material financial loss to the trust; (2) the trustee becomes incapacitated or insolvent; (3) the trustee fails to make an accounting that is required by law or by the terms of the trust; or (4) the court finds other cause for removal. (b) A beneficiary, cotrustee, or successor trustee may treat a violation resulting in removal as a breach of trust. (c) A trustee of a charitable trust may not be removed solely on the grounds that the trustee exercised the trustee’s power to adjust between principal and income under Section 113.0211.
How Can a Trust Administration Lawyer Assist?Breaching your fiduciary duty as trustee is a pretty big deal, and can lead to serious liability and lawsuits! Hiring a trust lawyer can benefit you in two ways: (1) sound legal advice for a trustee, to help you avoid breaching your fiduciary duty, (2) actually serving as trustee (or substitute trustee/backup trustee) of the trust, and again, helping you avoid liability for any potential claims of fiduciary breach. A competent trust attorney can help locate beneficiaries and make disbursements. A lawyer can also help with annual disbursements and assist with interpreting and carrying out stipulations or conditions on the trust. Sometimes disbursement may only be made after reaching adulthood, or upon the occurrence of other events such as graduating school, getting married, etc. A quality trust attorney who has good business savvy and business experience can even advise and assist you with accounting and reporting requirements, and/or with locating an accounting professional who can address these issues for you. If you are a trustee, a quality trust and estate lawyer should be able to guide you in your duties as a trustee or provide full trust service management. Here are some of the matters you may be able to get help with.
- Accounting and reporting of trust
- Communication with beneficiaries
- Investment guidance
- Distributions to beneficiaries
- Structuring your trust transactions
- Tax considerations
- Trust interpretation
- Trust reformation