How Much Discretion Should My Trustee Have?

Knoxville trust attorneys

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Many people choose to include at least one trust in their comprehensive estate plan. If that includes you, one of the most important decisions you will need to make when creating your trust is who to appoint as your Trustee. In addition, you will need to decide how much discretion your Trustee will have. Toward that end, the Knoxville trust attorneys at Stivers Law discuss how much discretion your Trustee should have.

Trust Basics

A trust is a relationship whereby property is held by one party for the benefit of another. A trust is created by a Settlor, also called a Maker, Grantor, or Trustor who transfers property to a Trustee chosen by the Settlor. The Trustee holds that property for the trust beneficiaries. The beneficiary of a trust can be an individual, an entity (such as a charity or political organization), or even the family pet. A trust must have at least one beneficiary but may have an unlimited number of beneficiaries.

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. If the trust is a revocable living trust, as the name implies, the Settlor may modify or terminate the trust at any time. An irrevocable living trust, however, cannot be modified or revoked by the Settlor at any time nor for any reason unless a court grants the right to revoke or modify the trust.

Trustee Discretion

As the Settlor of the trust, you create the trust terms. Those terms will be used to administer the trust and will typically cover things such as how assets should be invested, when distributions should be made, and who should benefit from the trust. The Trustee you appoint must follow those terms exactly as they are written unless a trust term is illegal, impossible, or unconscionable.

While the terms you create will be used by your Trustee to administer the trust, a Trustee will almost always need to make some decisions autonomously given the nature of the Trustee’s job. No matter how thorough you are when you create your trust terms, it is impossible to cover every possible scenario and issue that could arise during the administration of the trust. The real question is how much discretion a Trustee needs, not whether to grant your Trustee discretion at all.

To a large extent the type of trust you create coupled with your trust purpose will dictate how much, or how little, discretion your Trustee needs in order to successfully administer the trust. For example, if you are creating a testamentary trust to guard assets for your minor children, the Trustee will likely need a significant amount of discretionary authority to accommodate the unforeseen changes that will occur as your children grow up. Likewise, if you create a revocable living trust as part of your incapacity plan, you will likely appoint yourself as the Trustee and someone close to you as your successor Trustee. Both the type of trust and the trust purpose will probably call for the Trustee to have a significant amount of discretion.

Conversely, if you create an irrevocable living trust for the purpose of protecting assets, your Trustee won’t likely need much discretion given the nature and purpose of the trust. The same is true if you create a Special Needs Trust or a Medicaid Trust. In fact, the more discretion you give your Trustee in some specialized trusts, the more harm you may unwittingly impose on your trust purpose.

Contact Knoxville Trust Attorneys

For more information, please join us for an upcoming FREE webinar. If you have additional questions or concerns about how much discretion your Trustee should have, contact the experienced Knoxville trust attorneys at Stivers Law by calling (305) 456-3255 to schedule an appointment.

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One of the most common additions to the average estate plan is a trust agreement because a trust can help achieve a multitude of estate planning goals from staggering an inheritance to planning for Medicaid eligibility. One thing that all trusts have in common is the need to appoint a Trustee to administer the trust. If you are unfamiliar with trusts, you should understand Trustee compensation before creating a trust. Toward that end, the Coral Gables trust administration attorneys at Stivers Law discuss what you need to know about Trustee compensation. Trust Basics A trust is a legal relationship where property is held by one party for the benefit of another party. The person who creates a trust is referred to as the "Settlor", "Trustor" or "Grantor." The Settlor transfers property to a Trustee, appointed by the Settlor. The Trustee holds that property for the trust's beneficiaries, also named by the Settlor. The overall job of a Trustee is to protect and invest trust assets and to administer the trust terms found in the trust agreement. Trusts all fall into one of two categories – testamentary or living trusts. A testamentary trust is activated by a provision in the Settlor’s Will at the time of death whereas a living trust activates once all formalities of creation are in place and the trust is funded. Living trusts can be further divided into revocable and irrevocable living trusts. What Does a Trustee Do during the Administration of a Trust? The Trustee of a trust serves two primary functions – managing trust assets and administering the trust terms. The duties and responsibilities of a Trustee, however, are numerous and varied and include things such as: • Communicating with beneficiaries about trust business • Settling disputes among beneficiaries • Keeping detailed trust records • Preparing trust taxes every year • Investing trust assets using the “prudent investor standard” • Distributing trust assets according to the terms of the trust • Understanding and abiding by trust terms • Making discretionary decisions when given the authority to do so Trustee Compensation Administering a living trust does involve some ongoing expenses. Exactly what those expenses are and how much the total expense is will depend on a variety of factors. The size and/or value of the trust assets is typically the most important factor in determining the cost of administration because that often dictates the Trustee’s fee. The trust agreement itself can include terms that set a Trustee’s fee. If the Trustee is a professional, such as a CPA or attorney, the trust agreement may authorize payment at the Trustee’s normal professional hourly rate. In the absence of trust terms that provide guidance, a Trustee is entitled to a “reasonable fee.” If the Trustee is a corporate trustee, compensation will often be pursuant to a published fee schedule which is typically based on a percentage of the trust assets. A typical fee is between 1.0 and 1.5 percent of the value of the trust assets per year. They may also receive a small percentage of the trust income each year. If the Trustee is a non-professional, the fee tends to be lower (0.5-1.0 percent) because the trust will usually incur additional professional fees. If the trust owns property, expenses related to the maintenance and upkeep of the property will also be included in the costs of administration as will any legal fees incurred because of litigation. Appointing the right person (or entity) as your Trustee will typically lower the overall cost of administering a trust. Contact Coral Gables Trust Administration Attorneys For more information, please join us for an upcoming FREE webinar. If you have additional questions or concerns about Trustee compensation, or trust administration in general, contact the experienced Coral Gables trust administraiton attorneys at Stivers Law by calling (305) 456-3255 to schedule an appointment.Trustee Compensation – What You Need to Know Tips for Picking the Right Person as Your Trustee Trustee responsibilitiesTop 10 Trustee Responsibilities and Duties

Author Bio

Justin Stivers is the founder and managing attorney of Stivers Law, an estate planning firm specializing in wills, probate, trust administration, and financial risk management services. Justin’s approach goes beyond just creating legal documents. From aligning investments with estate plans to ensuring comprehensive insurance coverage, he safeguards a client’s legacy from unforeseen circumstances. His commitment extends beyond individual transactions, fostering lifelong partnerships to provide ongoing support and guidance.

With an impressive track record, Justin is licensed by the Florida and the Tennessee State Bars. His professional portfolio boasts Series 65 registration as a Registered Investment Advisor, the Wealth Management Specialist™ designation, and a 2-15 License for Health, Life, and Annuities. His dedication to excellence has earned him positions like Board Member of the Estate Planning Council of Greater Miami, Business Eagle Member of the Florida Justice Association, and active membership in esteemed organizations like the American Academy of Estate Planning Attorneys.

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