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Charleston Estate Planning & Asset Protection Blog

Monday, May 13, 2019

What Are the Responsibilities and Duties of a Trustee of a Testamentary Trust?

If an individual wants to leave money or property to an heir but wants to limit the use of or access to those funds, you may want to consider a trust. A trust allows the grantor to protect property and funds from the grantor’s creditors while also protecting the assets from the beneficiary’s creditors. If you want to create a trust without drafting a long trust agreement, you may want to talk to a South Carolina wills and trusts lawyer about a testamentary trust.

What Is a Testamentary Trust?

A testamentary trust is created through a person’s will. The trust only becomes effective upon the person’s death and the property is not transferred to the trust until the trust becomes effective. The will states the property that will be held by the trust, the terms of the trust, the trustee, and the trust’s beneficiaries. A grantor can change the terms of the trust at any time by changing his or her will. However, once the person passes away, the trust becomes an irrevocable trust.

Testamentary trusts are often used to hold the property for a minor child until the child reaches a specific age. However, a testamentary trust may also be used to hold the property for an adult.

What Are the Trustee’s Duties Under a Testamentary Trust?

The trustee has a fiduciary duty to manage the assets within the trust for the benefit of the beneficiaries. Therefore, the trustee must secure the assets from the estate and then invest or manage those assets in a prudent manner with long-term goals that benefit the beneficiaries. This duty may require the assistance of a legal professional, financial advisors, and tax professionals. The fees for professionals are paid from the trust funds. Estate planning lawyers can help a trustee retain professionals, if needed, to ensure that the trust assets are used wisely.

Trustees also have duties and responsibilities based on the terms of the trust. For a minor, a testamentary trust typically grants the trustee the power to use the trust funds for the “health, education, maintenance, and support” of the minor child. Expenses that might be paid from a testamentary trust would include tuition, school fees, health care, extracurricular activities, clothing, and other costs that the trustee deems appropriate within the terms of the trust.

A trustee may also be required to file tax returns on behalf of the beneficiaries when the beneficiaries are minors. There may not be taxes owed, but a return may be required. Tax professionals can assist with this responsibility.

Trustee Compensation and Record-Keeping

Unless the trust states otherwise, a trustee is typically entitled to receive compensation for his or her services. The trustee may receive the statutory compensation allowed for a trustee, or the testamentary trust may allow for a higher compensation rate.

It is recommended that a trustee keeps detailed records, including bank statements, investment records, receipts, invoices, and correspondence with beneficiaries and others. An accounting system should be in place to track income, expenses, and payments.

Consulting a South Carolina Wills and Trusts Attorney About Testamentary Trusts

Testamentary trusts are extremely useful estate planning tools. A South Carolina wills and trusts lawyer can help you set up a trust or work with you as you administer a trust as the trustee. Contact us today to help avoid some of the mistakes that may lead to an audit, review, or challenge.

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