At some point in your life you will likely realize the need to expand your initial estate plan. When you do so, you may decide to incorporate a trust into your expanded plan. One of the most important decisions you will make when creating your trust is your choice of Trustee. Once that decision is made, you will also need to decide how much discretion your Trustee should have. To explain the importance of providing just the right amount of discretion, a Grand Forks trust administration attorney at German Law Group discusses how much discretion to give your Trustee.
The Elements of a Trust
A trust is a separate legal entity that owns and holds property for the benefit of one or more beneficiaries. All trusts require the following five elements for creation:
- Settlor – the person who creates the trust. A Settlor may also be referred to as the Grantor or Maker of the trust.
- Trustee – an individual or entity that administers the trust terms as well as manages and invests the trust assets. This is your administrator.
- Beneficiary – a beneficiary is the person, entity, or even family pet that receives the benefit of the trust assets.
- Terms – created by the Settlor and may be anything that is not illegal, impossible, or unconscionable.
- Funding – almost anything of value can be used to a fund a trust, including cash, securities, and real property.
All trusts can be broadly divided into two categories – testamentary or living (inter vivos) trusts. Testamentary trusts are typically activated by a provision in the Settlor’s Last Will and Testament and, therefore, do not become active during the lifetime of the Settlor. Conversely, a living trust activates during the Settlor’s lifetime. Living trusts can be further sub-divided into revocable and irrevocable living trusts. The type of trust you create will likely have a direct impact on the amount of discretion your Trustee will need to successfully administer the trust.
How Much Discretion Does a Trustee Need?
The overall job of a Trustee entails protecting the trust assets and administering the trust terms; however, within that broad job description are numerous and varied duties and responsibilities. It is rare for a Trustee to be able to administer a trust without ever needing to make discretionary decisions. In order to properly administer the trust, a Trustee usually needs at least some discretionary authority. Exactly how much discretion a Trustee needs will depend on several factors.
The trust terms, created by you as the Settlor, will determine the amount of discretion to your Trustee has. The type of trust you create as well as the trust purpose will have a significant bearing on how much discretion your Trustee needs. For instance, if you are creating a revocable living trust as an incapacity planning tool, the Trustee will need a significant amount of discretionary authority because most of your assets will be held in the trust and the conditions under which your successor Trustee takes over will not be known ahead of time. By the same token, if you create a testamentary trust to protect a minor child’s inheritance your Trustee will also need to have the discretion to make decisions regarding investments and distributions that may occur years down the road. In this case, the fact that there are so many unknowns makes a certain amount of discretion necessary. Conversely, if you create an irrevocable living trust for the purpose of funeral planning, your Trustee doesn’t need much discretion because the trust terms will outline your wishes with regard to your funeral and burial and the Trustee’s job is basically to make sure those wishes are honored.
Contact a Grand Forks Trust Administration Attorney
Please join us for an upcoming FREE seminar. If you have additional questions or concerns about how much discretion to give a Trustee, contact a Grand Forks trust administration attorney at German Law Group by calling 701-738-0060 to schedule an appointment.