How to Successfully Manage a Trust
August 23, 2019
When someone establishes a trust, a separate person or entity is appointed to manage the trust on behalf of the beneficiary. A person may act as their own trustee if they have a living trust, but in many cases, the trustee is making financial decisions on behalf of someone who cannot make them themselves because of age, disability, or other factor. Acting as a trustee is a big responsibility, and there can be serious consequences for mismanaging a trust.
Rules of the Trust
It is important for the trustee to understand how a trust works in order to make responsible decisions. The trust document will establish what type of trust it is, who the beneficiaries are, and what rules the trust must follow. Different types of trusts have different guidelines; for example, in a first-party supplemental or special needs trust, funds from the trust must be used for goods and services that will directly benefit a person with disabilities. They cannot be used for the beneficiary’s spouse, children, or other relatives, and they cannot be used to make charitable gifts.
Some trusts, including first-party supplemental needs trusts, are tied to government benefits programs such as Supplemental Security Income (SSI) and Medicaid. In order for the beneficiary to remain eligible for these programs, the trust must adhere to certain rules. The trustee must understand and comply with these regulations, or they risk having these benefits terminated. If a trust is funded from the individual’s own personal wealth, they have more flexibility with their expenditures.
Documenting Trust Activity
The trustee will provide regular reports of trust activity to the beneficiaries and other parties named in the trust document, as well as file income tax reports for the trust. They must thoroughly document every expenditure, down to the penny, as well as any earnings from benefits programs or investments. Every reimbursement should have an accompanying receipt for an eligible purchase, and all documents should be kept safe and organized until either the trust ends or the role of trustee is transferred to someone else.
Setting up a checking account tied to the trust is the easiest way to manage transactions. A check or debit card will establish a paper trail in exact amounts, and the account will have detailed statements that can be used for reporting. Cash can only be withdrawn in certain denominations and can be more difficult to track, as the change from every purchase would have to be returned to the trust. If it is not, or if reimbursements do not have receipts attached, the trustee may be liable for the difference.
Ultimately, the trustee must act in the best interests of the beneficiary or beneficiaries. Even if they do not have any legal or financial expertise, they must be trustworthy and exercise good judgment in all dealings with the trust. They cannot intermingle their own finances with the trust, and they should approach all transactions professionally, regardless of how close they are with the beneficiaries.
Brooklyn Elder Law Attorneys at Korsinsky & Klein, LLP Help Clients Protect Their Interests
The elder law attorneys at Korsinsky & Klein, LLP have the knowledge and experience to help clients with all of their estate planning needs, including establishing a trust. We understand that every individual has different needs and will help you find the trust and trustee that are right for you. With offices conveniently located in Brooklyn, Manhattan, and Lakewood, NJ, we help families throughout New York and New Jersey. Call us today at 212-495-8133 or contact us online to speak to a seasoned Brooklyn elder law attorney.