FAQs About Trust Administration
Trust Administration FAQs
What is trust administration?
Trust administration is the process of managing trust assets and carrying out the duties of a trustee in accordance with the trust document, applicable law, and the bank's policies and procedures.
What is a bank's role as trustee?
When a bank serves as trustee, it may be responsible for safeguarding and investing trust assets, making authorized distributions, maintaining records, preparing accountings, handling tax-related matters, and carrying out the trust's terms.
What is a trustee?
A trustee is an individual or institution responsible for administering trust property for the benefit of the trust's beneficiaries according to the trust agreement and applicable law.
What is a beneficiary?
A beneficiary is a person or entity entitled to receive benefits from a trust according to its terms. Beneficiary rights and interests depend on the trust document and applicable law.
What is a grantor or settlor?
The grantor or settlor is the person who establishes and funds a trust. The trust document specifies how the trust is to be administered and how assets are to be distributed.
What is a revocable trust?
A revocable trust generally allows the grantor to amend or revoke the trust during the grantor's lifetime, subject to the terms of the trust and applicable law.
What is an irrevocable trust?
An irrevocable trust generally cannot be freely amended or revoked by the grantor after creation, although the extent of permitted changes depends on the trust document and applicable law.
What is a fiduciary duty?
A fiduciary duty requires a trustee to act in accordance with applicable law and the terms of the trust and to protect and administer trust assets for the benefit of the beneficiaries. Specific duties vary by jurisdiction and circumstances.
What are the primary fiduciary duties of a trustee?
Depending on applicable law and the trust terms, trustee duties may include:
- Acting in the beneficiaries' interests
- Following the trust document
- Exercising appropriate care and prudence
- Safeguarding trust assets
- Maintaining accurate records
- Managing conflicts of interest
- Maintaining appropriate confidentiality
- Providing required information and accountings
What is the duty of loyalty?
The duty of loyalty generally requires a trustee to act for the benefit of the beneficiaries and avoid improper self-dealing or conflicts of interest.
What is the duty of prudence?
The duty of prudence generally requires a trustee to exercise appropriate care, skill, and judgment when managing trust assets and carrying out fiduciary responsibilities.
How are trust assets invested?
Trust assets should be invested according to the trust document, applicable law, the bank's fiduciary investment policies, and the circumstances of the trust and its beneficiaries.
What is the Uniform Prudent Investor Act (UPIA)?
The UPIA is a model framework adopted in many states governing fiduciary investment responsibilities. The specific law applicable to a trust depends on the governing jurisdiction and circumstances.
Can a trustee favor one beneficiary over another?
A trustee generally must follow the trust document and applicable fiduciary duties when making decisions affecting beneficiaries. The trustee should not improperly favor one beneficiary over another.
What is a discretionary distribution?
A discretionary distribution is a distribution that the trustee has authority to make based on standards or discretion provided in the trust document and applicable law.
What is a mandatory distribution?
A mandatory distribution is a distribution that the trust document requires the trustee to make when specified conditions are satisfied.
What is a trust accounting?
A trust accounting provides information about trust assets, income, expenses, distributions, and other transactions. The content and frequency of required accountings depend on the trust document and applicable law.
How should trust records be maintained?
Trust records should accurately document transactions, investment activity, distributions, communications, decisions, beneficiary information, and other matters necessary to demonstrate proper administration.
What is trust tax administration?
Trust tax administration includes coordinating the preparation and filing of applicable tax returns, reporting income and distributions, maintaining tax records, and working with qualified tax professionals when appropriate.
What happens when a beneficiary requests information about a trust?
The bank should review the trust document, applicable law, and the beneficiary's rights before providing information. Requests should be handled through established fiduciary and legal procedures.
What happens when the grantor dies?
The trustee should follow the trust's provisions and applicable law regarding administration after the grantor's death. This may include identifying beneficiaries, valuing assets, paying authorized expenses, handling taxes, and making required or permitted distributions.
How does a trustee handle conflicts of interest?
Potential conflicts should be identified, documented, and managed according to applicable law, the trust document, and the bank's fiduciary policies. Material conflicts should be escalated to appropriate fiduciary or legal personnel.
Can a bank trustee purchase assets from a trust?
Transactions involving the trustee, affiliates, employees, or related parties may create conflicts or be subject to specific legal and fiduciary restrictions. Such transactions should receive appropriate review and approval before proceeding.
What is co-trustee administration?
Co-trustee administration occurs when two or more trustees share responsibility for managing a trust. Their respective authority and responsibilities depend on the trust document and applicable law.
What happens when a trustee is unable or unwilling to continue serving?
The bank should follow the trust document and applicable law concerning succession, resignation, removal, or appointment of a successor trustee.
How are trust assets titled?
Trust assets should generally be titled and maintained in a manner that accurately reflects the trust's ownership and the trustee's fiduciary capacity, consistent with applicable law and bank procedures.
What is a fiduciary account?
A fiduciary account is an account administered by a trustee or other fiduciary on behalf of beneficiaries or another party under a legal arrangement.
How does BSA/AML apply to trust administration?
Banks must comply with applicable BSA/AML requirements when providing trust and fiduciary services. Depending on the circumstances, this may involve customer identification, due diligence, beneficial ownership considerations, transaction monitoring, recordkeeping, and suspicious-activity escalation.
How should trust distributions be processed?
Distributions should be authorized under the trust document, applicable law, and bank procedures. Appropriate documentation, approvals, tax considerations, and beneficiary information should be reviewed before funds are distributed.
What should a trustee do if the trust document is unclear?
The trustee should not make assumptions about ambiguous provisions. The matter should be reviewed by appropriate fiduciary, legal, or other qualified personnel, and the trustee should follow applicable legal procedures for resolving uncertainty.
What should employees do if they identify a potential fiduciary issue?
Employees should promptly escalate concerns through the bank's fiduciary, legal, compliance, or risk-management channels. Potential conflicts, unauthorized transactions, documentation deficiencies, and other fiduciary concerns should be addressed according to established procedures.
Why is trust administration important for banks?
Effective trust administration protects beneficiaries and trust assets, supports compliance with fiduciary duties and applicable law, reduces operational and legal risk, and helps ensure that the bank faithfully carries out its responsibilities as trustee.
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