What is a trust administration?

Contact Amy button

Trust administration refers to either the general management of an ongoing trust or to the use of a trust to distribute a person’s assets after death. For ongoing trusts, trust administration involves three main responsibilities:

  • Investing trust assets
  • Carrying out the terms of the trust, such as making distributions to beneficiaries as the grantor wishes
  • Complying with trust legal obligations, such as paying any income tax that the trust owes.

A trust is a way to settle the estate of someone who has died. Trust administration is an alternative to letting the court system do that work through a legal process called probate.

What are the responsibilities of a trust administrator?

The trust administrator carries out the trust terms. Administrators have a duty to loyalty and confidentiality. They must complete practical duties, such as accounting for and investing the assets. But their main task is carrying out the trust terms.

What kinds of trusts exist?

There are many types. The first question is whether a person needs a revocable or an irrevocable trust.

  • A revocable trust means it can be changed or revoked.
  • An irrevocable trust generally cannot be amended or revoked. Once it’s in place and assets are deposited into the trust, generally the trust exists as is forever.

Other types of trust include:

  • Charitable trusts, established for people seeking tax savings and to benefit charities.
  • Supplemental needs, or special needs, trusts, established for a loved one with a disability.
  • Cabin trusts, for people who want to put a cabin or vacation home into a trust to preserve it for future generations. This trust is common for people who live in Minnesota.

Which is better, a revocable or irrevocable trust?

Attorneys want to know client needs and purposes before settling on the best type of trust for their clients. For example, if your goal is to reduce estate taxes, you may need an irrevocable trust. But for other purposes, an irrevocable trust may be inappropriate or confining. 

Is a living trust revocable or irrevocable?

A living trust can be either revocable or irrevocable. That said, when people refer to a “living trust,” they most often refer to a revocable trust.  

What is an A/B trust?

This is really two related trusts, the A trust and the B trust. An A/B trust plan is a strategy for married couples to eliminate or minimize estate taxes. These trusts also are sometimes referred to as the marital trust and the family trust.

Generally in an A/B trust plan, the couple’s assets are divided between the two trusts when the first spouse dies. A portion of the couple’s assets then funds (is deposited in) one trust. The amount used to fund that trust is determined to minimize estate taxes after the second spouse dies. The couple’s remaining assets then fund the other trust.

A family trust established as an A/B or marital/family trust is irrevocable. When it comes to divorce, it depends on what the trust terms say about divorce. If someone calls their trust a family trust but it’s not formally established that way, it is revocable. In those cases, the parties can negotiate what happens to the trust assets in a divorce.

Establishing an irrevocable trust may be a way to protect assets in the event of a divorce.

What are the steps to establish a family trust?

Typically, the family trust is established as part of an estate plan and takes effect after the first spouse dies. The person establishing the trust names the trustee. This trustee can be the surviving spouse, another person, a bank or a trust company.

The family situation usually determines the best choice for a trustee. For example, if one spouse is not financially savvy or not able to carry out the terms of the trust, a third party might be a better choice. Also, the higher the value  of trust assets, the more value a third-party professional trustee may bring.

Are life insurance proceeds taxable to a trust?

Generally, life insurance proceeds are not taxable. But if the benefits are paid to a trust, and then invested, the growth in asset value would be taxed.

Should I put my life insurance in trust?

It depends on the circumstances. Certain kinds of trust called irrevocable life insurance trusts are set up to hold life insurance as another estate tax minimization strategy facilitating gifting. In general, if life insurance is payable and the trust is the beneficiary of a life insurance policy, this could help children or young adults not yet able to manage a large sum of money.

What is a charitable trust? 

Charitable trusts are designed to reduce either estate taxes or income taxes. They also support a favorite charitable organization through a donation or series of donations.

What is a charitable remainder trust?

This type of irrevocable trust is designed to generate income for the person establishing the trust and possibly beneficiaries, as well. After covering these expenses, the remainder of the trust assets flow through to a charity or charities that the donor has designated for support, often providing tax benefits as well.