As you consider the need and use of a trust, it is important to understand the roles and responsibilities of those charged with carrying out your most caring and personal wishes at some point in the future, including how a trust company can help. As you read further, you will find out what a trust company is, the responsibilities bestowed upon a trustee, the safety measures in place to protect your assets from impropriety, and what our Trust Services team can do for you.
Armed with the knowledge of what to expect from these relationships will give you confidence that your wishes will be executed precisely throughout the lifespan of the trust. You can rest assured, knowing that your loved ones will be protected for the foreseeable future.
What is a Trust Company?
A trust company is a business entity that acts as a trustee of a revocable or irrevocable trust, a personal representative for an estate, or an agent in an investment management relationship. In many cases, a trust company can also assist in the formation of a trust, including support in finding a lawyer to draft the trust document.
As trustee, the employees of the trust company are entrusted with managing the assets, finances, and often the personal affairs of the beneficiary or beneficiaries. A beneficiary may be an individual, such as the trustor (grantor/settlor), immediate family members (children & grandchildren), relatives, friends, or pets. Educational, medical, or religious institutions may be named as a beneficiary, as well as other charitable organizations. A trust company will manage the assets until such a time, set by the trustor, when the assets are finally distributed to a benefactor.
What Does it Mean to be a Trustee?
A trustee is named in the trust document or appointed by a court order to hold and manage assets such as stocks, bonds, mutual funds, real estate, or property for or on behalf of the beneficiaries. The trustee named may be a business entity or an individual. There generally are two groups of trust beneficiaries. The primary beneficiaries are currently entitled to receive distributions of the trust’s income or principle. The remainder beneficiaries may receive income and/or assets after the death of the primary beneficiary.
The trustee has a legal responsibility to follow the directions set forth by the terms of the trust and has a fiduciary duty of loyalty, to administer solely in the best interest of all the beneficiaries of the trust. There are many other duties owed to beneficiaries, including:
- Duty to administer a trust by its terms
- Duty to exercise reasonable skill and care
- Duty to give notices
- Duty to furnish information and communicate
- Duty to collect and keep control of assets
- Duty to account
- Duty to avoid conflicts of interest
- Duty to segregate trust property
- Duty of impartiality
- Duty to make assets productive
- Duty to enforce and defend claims
- Duty of confidentiality
A trustee can be held personally liable for any breach of duty involving investment management and financial transactions, such as overdue bills, missed tax payments, distributions to beneficiaries, or environmental problems with real estate. Inattention to trustee duties is one of the principal reasons for general disharmony among family members, often leading to emotional distress, increased administration costs, and potentially expensive litigation.
In many situations, the experience, technology, and financial resources of a corporate trustee can offer significant benefits of expertise in asset management, accounting, and tax matters on a cost-effective basis compared to designating an induvial as trustee.
Are My Assets in Safe Hands?
For many, the idea of passing control of their assets can make them understandably uneasy. However, in the case of a trust, there are several legal safeguards in place to protect you, your assets, and your beneficiaries. When a trust company is designated as trustee, there is another level of state and federal regulation to protect the trustor and beneficiaries.
A trust company will take incredible precautions to maintain the safety of its clients’ assets. Here are some of the safeguards:
- Property and liability insurance is carried against physical loss on all real estate property.
- Fidelity insurance coverage is required on all trust personnel to insure you against dishonesty.
- Assets in each of the trust’s accounts are separate from other accounts and from the bank assets.
- Auditors, who report directly to the Board of Directors, regularly check disbursements against invoices or receipts to determine if payments are correct and to the right party.
- Assets that we own are balanced daily.
- Trust examiners from the Washington State Department of Financial Institutions and from the Federal Deposit Insurance Corporation (FDIC) make periodic, surprise visits to each trust institution to assure administrative and investment compliance with state and Federal laws, banking regulations, and the terms of the governing document.
- Committees established by the board of directors must meet regularly to set policies and to review the acts of the Trust Officers, Administrators, and Investment personnel. These same committees approve all distributions, existing investments, and investment changes.
What Does our Trust Services Team Do?
Many trust companies will guide you through the process of crafting an estate plan. Our trust administration specialists will work step-by-step with you to develop an estate plan that may include using a trust, when appropriate. Our focus is on helping you preserve wealth during your life, including during a time of illness or disability, while minimizing expenses and taxes at the eventual wealth transfer upon your death.
HFG Trust personnel are not attorneys and do not give legal advice or prepare legal documents.
There are two basic types of trusts. An inter vivos trust is one which is established by a person during their lifetime by a trust agreement. A testamentary trust is one that is embodied within the terms of an individual’s Last Will and Testament or Living Trust and does not come into existence until that individual’s death.
In the case where a trust is necessary, our Trust Services team will help build the framework of that trust and work with you and an estate planning attorney to create the document. You can either pick an attorney or we can help you select one.
Keep in mind with proper planning, a trust gives you flexibility to structure generational wealth transfers for the unique circumstances of your family and your desire to support or endow your legacy to the organizations or community you would like to see benefit from your success.
During trust administration, the trustee always has a duty to act in the best interests of the beneficiaries and must not put his or her interest above those of the beneficiaries. As a corporate trustee, HFG Trust is held to a higher standard than an individual trustee.
While administering the trust we often serve two distinct groups. The current income beneficiaries and a second group that includes remainder beneficiaries, who may receive the trust property after the current beneficiaries have died. We must be impartial and balance the interests of all the beneficiaries (current and remainder) when making decisions about the trust.
A trustee has all the duties previously listed and, once accepting appointment to be trustee, will have additional daily responsibilities. As trustee, the individual or entity will need to:
- Determine what assets will fund the trust and manage them as a prudent person acting in a similar capacity.
- Identify all the current and remainder beneficiaries and notify them of the trust’s existence.
- Maintain awareness of each beneficiary’s needs and circumstances.
- Become familiar with special needs or requirements of the beneficiaries.
- Develop and document investment objectives for financial assets for the management of the trust assets.
- Provide all beneficiaries with quarterly or annual reports of the trust’s activities, including receipts, disbursements, investment purchases and sales, and investment performance.
- Calculate and distribute required distributions to beneficiaries.
- When requested, approve or deny certain discretionary distributions according to the terms of the trust document.
- If applicable, pay utility bills, real estate taxes, and other expenses for trust owned real estate.
- If applicable, review and negotiate leases or rental agreements for investment properties.
- If applicable, arrange for landscaping, plumbing and electrical work, and other maintenance of trust owned properties.
- When asked, pay beneficiaries bills and living expenses.
- Arrange for periodical and emergency maintenance on investment properties (i.e., light the pilot light on a hot water heater or change lightbulbs).
- Arrange for the preparation of trust (Form 1041) and personal (Form 1040) income tax returns.
- Maintain adequate property, casualty, and liability insurance coverage on real assets.
- Assist beneficiaries with obtaining loans, housing, or transportation.
- Assist beneficiaries with financial or personal matters.
- Promptly respond to any communications or requests from beneficiaries.
- If there is a co-trustee, seek their approval on all required matters and hold periodic meetings.
- Engage and manage any third-party professionals (i.e., investment advisor, property manager, attorney, CPA)
- Monitor trust expenses to make sure they are appropriate and reasonable.
- Monitor expenses paid on behalf of the beneficiary to make sure they are genuine.
- If necessary, prepare environmental reports on any real assets
- Arrange for legal work on behalf of the beneficiaries.
- Protect beneficiaries from other aggressive beneficiaries and unscrupulous sales practices.
- Monitor the timing of asset sales to minimize taxes to the trust and beneficiaries.
- If applicable, prepare court accountings.
- Provide continuing education to families and beneficiaries about the wealth they have received or are about to receive.
When the time comes to distribute the trust assets or overseeing the administration of in an estate, HFG Trust will act as your executor, allowing your loved ones to focus on the important things while we take care of the fine details. This will give your family peace of mind, knowing your wishes are being fulfilled.
If you don’t have an estate plan, are starting to consider your options, or thinking of making changes to your existing plan, you may find that opting for our services and our team presents a more favorable choice than attempting to handle it independently.
Schedule a free consultation to find out how our Trust Services team can help you protect your heirs and pass on your legacy today.
This material is solely for your information and should not be considered legal, tax, investment, or other professional advice. Trusts are complicated legal instruments, and you are urged to consult with an attorney.
John Stadsvold, CTFA, AEP®, Senior Trust Officer
