Before you start administering a trust, you should know your fiduciary duties. These duties include loyalty and impartiality. Also, there are taxes to consider. The following article provides basic information about these important duties. It will also help you understand the different types of assets that a trust may contain.
Fiduciary Duty
In Trust Administration, a fiduciary duty exists between the protector of a trust and its beneficiaries. A trust company is often organized as a commercial bank and performs fiduciary functions.
A fiduciary must keep accurate records and provide complete information to beneficiaries. This includes allowing beneficiaries to inspect the trust documents. The trustee also must file annual accountings with the Commissioner of Accounts.
Duty Of Loyalty
The duty of loyalty in trust administration requires trustees to act in the best interests of the beneficiaries and cannot be motivated by personal or third-party interests. The primary duty of trustees is to preserve the trust estate’s assets and avoid taking any action that may be detrimental to the trust estate. This rule protects the interests of the beneficiaries and is essential to good trust administration.
A breach of duty of loyalty can lead to legal action against a trustee. Trustees can be removed or suspended if they breach the duty of loyalty. This action will prevent further harm to the trust’s beneficiaries while litigation is pending. Damages and attorney’s fees can also be awarded.
Duty Of Impartiality
As trustees of the trust, you must act impartially toward your beneficiaries. This is important because the interests of the beneficiaries of a trust are only sometimes aligned. Trustees must consider all the facts of each case and the terms of the trust. However, you should always respect one beneficiary over another. This applies particularly to disputes among beneficiaries that have nothing to do with the trust’s validity.
The duty of impartiality is analogous to good faith and fair dealing. Although Texas law does not impose an implied covenant of good faith on all contracts, it recognizes a duty of good faith in special relationships between trustees and beneficiaries. Such relationships can arise from specific facts or can be imposed by statute. This duty applies to non-fiduciary relationships as well.
Taxes
Trust administration involves the proper distribution of assets. Trustees should be fiscally prudent and have strong judgment. They should be able to balance the interests of their corpus beneficiaries with those of the income beneficiaries. Multiple trustees are sometimes beneficial because they bring a variety of interests to the table. However, it is important to establish an effective tie-breaking mechanism. If the trustees disagree, extra votes may be a useful mechanism for controlling the trust.
Some types of trusts require taxes. Estate taxes are a common requirement. As a result, some trustees may elect to have the beneficiaries pay tax on long-term capital gains. The trustee should inform the beneficiaries of this option.
Investing
One of the best ways to invest in trust administration is by hiring a company specializing in this field. The best companies have an excellent track record and will work hard to protect your assets from creditors. They will also provide a wealth of information and resources to help you make smart investment decisions.
Investing in trust administration requires careful consideration of your interests as well as the interests of your beneficiaries. It will help if you avoid conflicts of interest that could negatively impact your investment decisions. As a fiduciary, you are obligated to act in the best interests of your beneficiaries. Therefore, it is critical to understand your investment liability exposure.
Keeping Records
If you’re a trustee, you must keep proper records to account for the assets in your trust. If you don’t, you may have to repay the trust for any mistakes you made, either through your pocket or from your trustee fee or beneficial share. There are steps you must take to keep records.
The first step is to review the trust accounts’ reports monthly. You cannot delegate this responsibility to others. Make sure that you use accounting software with a print option to print out the activities of each trust account. When creating trust account statements, ask your clients for contact information. You should also maintain detailed records for at least six years.
