Trusts may be established for many different purposes. As just one example, a parent may have concerns about a child’s ability to responsibly handle a lump-sum inheritance and may decide to establish a trust. The parent, working with an attorney, would write a trust agreement that stated when and for what purposes money in the trust could be used. After the parent’s death, any funds to be inherited would be deposited, held, and invested in a trust account. All future distributions from that account would have to match the conditions set forth in the trust agreement.
A trust, of course, cannot operate itself. In order to achieve the purpose for which a particular trust is established, someone must manage the trust funds and take the actions necessary to carry out the terms of the trust agreement. This work is referred to as trust administration. At this point, many people will hire an attorney to administer the trust.
In addition to investing and distributing the trust assets in alignment with the trust agreement, trust administration also includes documenting compliance with the fiduciary, tax, and accounting requirements applicable to trusts.
The trustee is ultimately responsible for all trust administration. An error in administration may cause an unhappy beneficiary to make a claim against the trustee for a breach of fiduciary duty which, if successful, may result in personal liability for the trustee.
Understandably – given the work involved and the potential for personal liability – it may be quite daunting for an individual to serve as a trustee. An individual trustee may hire an attorney for guidance on administering the trust.
Another option is to hire a professional fiduciary – such as a bank – to serve as the trustee, or as an agent for the individual trustee. A trust administrative officer is an employee (often an attorney) of the bank hired. The trust administrative officer often works with a portfolio manager in the investment of the trust assets. The administrative officer is responsible for understanding and interpreting the language of the trust agreement, responding to requests from beneficiaries for distributions from the trust, and completing all necessary documentation to keep the trust in compliance with applicable law.