What Is a Trustee and What Does a Trustee Do in Georgia?
You have been appointed Trustee of a Trust. A Trustee is the individual or corporation that is entrusted with the administration and management of property on behalf of the beneficiary of the Trust.
What Is the Difference Between a Trustee and an Executor?
Although trustees and executors both have important fiduciary responsibilities, their roles are different. An executor is responsible for administering a deceased person’s estate through the probate process, including managing estate assets, addressing debts, and distributing property according to the will and applicable Georgia law.
A trustee, on the other hand, manages assets held in a trust for the benefit of its beneficiaries. Depending on the type of trust, these responsibilities may begin during the grantor’s lifetime and continue after their death. Unlike an executor, a trustee generally administers trust property according to the trust agreement rather than through the probate process.
How Do You Set Up and Manage a Trust?
The assets owned by the Trust will include those assets that the Grantor (the one who established the Trust) or others have transferred to the Trust. You will need to open an account in the name of the Trust, with yourself as Trustee. This can be a bank account, a money market, or a brokerage account – as you see fit. You will use either the Social Security number of the Grantor, or the tax ID number that the IRS has assigned to the Trust when you open this account, and when you transact any business that requires a tax identification number (such as filing tax returns). If you need assistance in obtaining a tax ID number, contact an Atlanta trusts lawyer.
The Trust may also own real property. This could be real property that the Grantor has transferred to the Trust, or it may be property that you as the Trustee purchase in the name of the Trust.
If the Trust was established for estate tax planning purposes, and if additional transfers are made from the Grantor to the Trust, it may be necessary for you to prepare a “Crummey Notice” each time such a gift is made to the Trust. If you need assistance in doing so please contact us.
What Are a Trustee’s Fiduciary Duties in Georgia?
Being appointed and serving as a Trustee is a very serious undertaking. Every Trustee is held to a high standard of performance – considerably higher than the performance acceptable for your own affairs. A person who holds property for another is a fiduciary. Every Trustee is a fiduciary and has certain duties which must be strictly carried out. These duties include:
- Duty to carry out the terms of the trust agreement.
- Duty of loyalty to the beneficiary.
- Duty to act and invest prudently.
- Duty to not delegate Trustee responsibilities.
- Duty to maintain the books and records and keep the beneficiary reasonably informed of the trust administration.
Of these duties, perhaps the most significant duty is that of undivided loyalty to the beneficiary. The Trustee must administer the trust solely in the best interests of the beneficiary and exclude from consideration his own advantage as well as exclude the welfare of any other person. Because the Trustee is in a position of such intimacy with the beneficiary and has such control over the beneficiary’s property, a Trustee is held to a higher standard than would govern in an ordinary business transaction. Chief Justice Cardozo eloquently described this duty in the case Meinhard v. Salomon, 249 N.Y. 458 (1928), by saying: “Many forms of conduct permissible in a workaday world for those acting at arm’s length are forbidden to those bound by fiduciary ties. A Trustee is held to something stricter than the morals of the marketplace. Not honesty alone, but the punctilio of honor the most sensitive, is the standard of behavior.”
How Should a Trustee Make Distributions to Beneficiaries?
To make decisions about making distributions to the beneficiary, or purchasing goods or services for the beneficiary, you will be guided by the specific terms of the Trust. As such, it is important that you read and understand the distribution standards in the Trust agreement. For example, if the Trust is a Support Trust, the Trustee may be more liberal in making distributions; if it is a Special Needs Trust the Trustee will likely be more conservative. If you are not certain what distribution standard applies to the Trust you are administering, please contact us.
What Are a Trustee’s Fiduciary Duties in Georgia?
Under Georgia law, trustees have a fiduciary responsibility to administer a trust according to its terms and in the interests of its beneficiaries. These obligations include exercising prudent judgment, managing trust property responsibly, avoiding conflicts of interest, and providing appropriate information and accountings to beneficiaries. The specific responsibilities may vary depending on the terms and purposes of the trust.
What Expenses Can a Trustee Pay From a Trust?
One of a trustee’s primary responsibilities is determining how trust funds can be used to support the needs and interests of beneficiaries. Depending on the terms of the trust, trustees may be authorized to pay for expenses related to housing, healthcare, transportation, education, personal care, and other necessities.
However, not every expense is automatically permitted. Trustees must follow the instructions outlined in the trust agreement, exercise reasonable judgment, and ensure that distributions serve the beneficiaries’ interests. The type of trust also matters. For example, distributions from a Special Needs Trust may require additional consideration to avoid negatively affecting a beneficiary’s eligibility for government assistance programs such as Supplemental Security Income (SSI) or Medicaid.
The following are examples of expenses that may be paid using trust funds, provided they are permitted under the trust agreement, appropriate for the beneficiary, and supported by sufficient trust assets:
- Automobile or van;
- Accounting services;
- Acupuncture or Acupressure;
- Alterations or mending to clothing; shoe repairs;
- Appliances (TV, VCR, stereo, microwave, stove, refrigerator, washer, dryer and maintenance and repairs);
- Bottled water or water service;
- Camera, film, recorder and tapes, development of film, photo albums, scrapbooks and supplies;
- Clothing;
- Clubs and club dues (record clubs, book clubs, health clubs, service clubs, zoo, advocacy groups, museums);
- Computer hardware, software, program, maintenance and service, internet service;
- Conferences and travel related to same;
- Courses or classes (academic or recreational) including supplies;
- Curtains, blinds, drapes and the like;
- Dental work, including anesthesia;]
- Down payment on home or security deposit on apartment;
- Dry cleaning, laundry services, and supplies;
- Elective surgery;
- Fitness equipment;
- Funeral expenses;
- Furniture, home furnishings and insurance;
- Gasoline and maintenance for automobile;
- Haircuts and salon services;
- Holiday decorations, parties, dinner dances, holiday cards;
- Home alarm and monitoring system;
- Home improvements, repairs and maintenance, including tools to perform home improvements, repairs and maintenance by homeowner;
- Home purchase;
- House cleaning, maid services, lawn services, snow removal;
- Independent Care Managers;
- Insurance (automobile, home and/or possessions);
- Legal fees and advocacy;
- Linens, towels, bedding and other household furnishings;
- Massage, facials and other similar services/treatments;
- Musical instruments (including lessons and music);
- Non-food grocery items (laundry soap, bleach, fabric softener, deodorant, dish soap, hand and body soap, personal hygiene products, paper towels, napkins, facial tissue, toilet paper, any household cleaning products);
- Over the counter medications (including vitamins and herbs, etc.);
- Personal assistance services;
- Pet, pet supplies, and veterinary services;
- Physician specialists;
- Private counseling;
- Repair services (appliance, automobile, bicycle, household, fitness equipment);
- Sporting goods, equipment, uniforms, team pictures, and travel to games and tournaments;
- Stationary, cards, etc.;
- Storage units;
- Taxi transportation;
- Telephone service and equipment, cell phone, pager, etc.;
- Therapy (Physical, Occupational, Speech);
- Tickets to concerts or sporting events (for the beneficiary and an accompanying companion);
- Transportation (automobile, motorcycle, bicycle, moped, gas, bus passes);
- Utility bills (direct TV, cable TV, electric, heating); and
- Vacation (including paying for personal assistance to accompany the beneficiary).
What Records Must a Georgia Trustee Keep?
It is of utmost importance that you keep complete and accurate records. It may be necessary to determine whether distributions from the Trust are income or principal. You should keep a record of each disbursement as it is made, keep the receipt for the disbursement, and review the records monthly when you balance the Trust accounts. You should review the records again each year, in preparation for the filing of the income tax return.
Georgia trustees may also be required to provide reports and accountings to trust beneficiaries. Under O.C.G.A. § 53-12-243, certain beneficiaries of irrevocable trusts are entitled to accountings at least annually, upon termination of the trust, and when trustees change, subject to applicable exceptions and trust provisions. Maintaining accurate financial records can help trustees satisfy these obligations and demonstrate that trust assets have been administered properly.
Does a Trustee Need to File Tax Returns?
Because filing an income tax return on behalf of the Trust can be a daunting task, and because the rules regarding taxation of Trusts are different than those regarding individuals, I strongly encourage you to engage a CPA to assist you with this task. The expenses incurred can be paid from the Trust assets, and would be well spent.
As you begin this new experience of acting as a Trustee remember that we are here to assist you. Please contact us when we can be of further assistance.