Whether it’s an honor or a burden (or both), you have been appointed trustee of a trust. What responsibilities have been thrust upon you? How can you successfully carry them out?

Here are nine do’s and one don’t to get you started:

• Do read the trust document. It sets out the rules under which you will operate, so you need to understand it completely.

• Do create a checking account for the trust. All income and expenses should go through this account. While you can and should invest the money, a checking account will enable you to make distributions and payments and keep track of them.

• Do keep the best interests of the beneficiaries in mind at all times. You have what’s called a “fiduciarry” duty to them, which is an extremely high standard.

• Don’t have any personal financial dealings with the trust. For instance, you cannot borrow money from the trust or lend the trust money to anyone.

• Do provide the beneficiaries and anyone else indicated in the trust with an annual account of trust activity. This can be a copy of the checking and investment account statements or a more formal trust account prepared by an accountant or attorney.

• Do invest the trust funds prudently and productively. You cannot simply leave the trust funds in a savings account. And you can’t put them all into a promising new company. You need to diversify the trust portfolio among stocks and fixed income securities. It is wise to get professional investment advice.

• Do keep in regular contact with the beneficiaries to understand their needs.

• Do be aware of any public benefits the beneficiaries may be receiving and make sure you do not jeopardize the beneficiaries’ eligibility.

• Do file annual income tax returns for the trust.

• Don’t fly solo. Get professional advice to make sure you are correctly fulfilling your role.

Trust or Will?

New Considerations for the New Year

Copywright – 2012 Andrea Lee

In my practice, “Do I need a Trust or a Will?” is one of the most frequently asked questions. Generally, the answer is “it depends.” Both forms of Planning have pros and cons, and with the law changes coming into effect as of January 1, 2012, some of the benefits to having Trust have become even less persuasive.

The purpose of either a Will or a Revocable Living Trust is to pass your assets to your family at your death. Both accomplishes the job. Both have pluses and minuses. The most common “minus” cited for a Will is that a Will is Probated whereas a Revocable Living Trust is not. However, basing your decision whether to have a Will or a Trust simply on the fact that a Trust avoids Probate is too simplistic. It ignores the fact that, in Washington State, most of the work of a probate is not the court supervision involved, but rather the identification and selling of assets, the payment of debts, and the notice and distribution of assets to the correct beneficiaries and or heirs. Under the new Laws, that all still has to be done when you have a Trust. Additionally, prior to the law changes that go into effect January 1, 2012, the benefit of the Trust was that it could be kept rather private, and notice of the Trust did NOT have to be sent out to heirs and/or beneficiaries the Trust creators wanted kept uninformed. Under the new Trust provisions, some of the benefits of a Trust, such as less restrictive administrative process and notice requirements, are gone with the wind.

While there are many issues people must consider when deciding between a Trust or a Will, the focus of this article are the changes to the Trust Laws, and how they affect the ways we manage Trusts, and hence how they change our analysis when deciding whether or not to have a Trust or a simple Will.

All of the significant Law changes coming into effect involve the administration and notice requirements involving Trust. A quick summary of the significant changes are

(1) modifying the method for determining a trust situs and venue for proceedings; (2) requiring notice by trustees to beneficiaries; (3) allowing the courts to reform mistakes in trust documents; (4) making noncharitable trusts without ascertainable beneficiaries enforceable; and (5) codifying pre-existing common law. Most of my clients will not be effected by the Law changes with regards to situs and venue, statutes of limitations or noncharitable trust without ascertainable beneficiaries, those are changes that, while important to a very few, will never have to be considered by the majority of people.

In my opinion, the two most significant changes that will effect how we look at Trusts are the following:

 RCW 11.97.010

- The statute regarding Notice, in my opinion, is the change that most effects my clients. Frequently, individuals want Trust in order to keep their affairs private. Maybe a client has three children, and they are not make eqaul distributions, or maybe one child’s funds are being held in Trust due to a drug or alcohol problem, and the parents did not want everyone to know how their assets are being distributed. Under the new laws, maintaing this privacy has become MUCH more difficult, and would require a significant amount of planning.

Additionally, now the beneficiary of a trust must be given notice of th Trust and copies to ALL interested parties, including contingent beneficiaries….discuss safe harbor trust, contingent beneficaires must receive notice of trust now… and be kept informed about the administration of the trust and of material facts necessary for them to protect their interest. Trustees must now provide reports to the interested parties.

RCW 11.98

- Distributing funds. Prior to the new laws, Trust distributions were very simple to make, and often involved the Trustee simply sending a check to each other beneficiaries. Now, a Plan to distribute funds must be sent via certified mail to the beneficairies, who have 30 days to object to the plan.

A change to both Trusts and Wills-

One significant change that affects both Trust and Wills is the following is to RCW 11.96A, which now allows the courts, through court order or party agreement, to reform and/or change Wills and Trusts to conform with intent of the Testator or Trustee (if the Trustee/Trustor is not able to make changes due to incapacity, death or other reasons). When a change is necessary, and if it can be proven with clear, cogent and convincing evidence, that the Will or Trust, as written, does not meet the Trustee or Trustor’s intent the Trust or Will can be changed. Previously we were occasionally able to modify and exisitng Trust using case law, however, the process should now be much simpler as the law support appropriate changes.

In a nutshell, the same issues that we previously discussed when choosing a Trust or a Will still have to be explored. However, if a person’s primary purpose of getting a Trust is to keep it private and to avoid some of the Notice and procedural responsibilities associated with a Will, then their planning may very well have to be revisited to ensure the privacy can still be maintained and to see if having a Trust offers any real protection from the administration associated with a Will.