If you are involved in trusts, this is your opportunity to brush up. I have five tips for you on trust administration from Ellen Deeter, a lawyer with extensive background in the area. Ms. Deeter spent most of the past 35 years working in bank trust departments, including as senior trust counsel. Ellen generously agreed to share her expertise with Law Tips readers.
Tip #1 – Read the entire trust agreement!
• After you have read the trust agreement from beginning to end, including the “boilerplate”, read it again. And then a third time.
• Next, write out a synopsis of the trust agreement, highlighting key provisions. Pay particular attention to the provisions identifying the beneficiaries (current and future), noting mandatory and discretionary distributions, termination provisions, and allocations between principal and income.
• Every time you receive a request for a distribution refer back to the document and make sure that the request is:
1. from someone entitled to receive it.
2. for a purpose that is allowed in the document.
Tip #2 – Read and know the Indiana statutes on trusts (make Indiana Code Title 30 your friend).
• In addition to the Indiana Trust Code, also become familiar with the Indiana Probate Code, the Uniform Principal and Income Act, Total Return Unitrusts. Don’t forget the Internal Revenue Code and the provisions governing the taxation of trusts.
Tip #3 – Establish a process, follow it consistently; communicate.
• Don’t wait until you get a request from a beneficiary for a discretionary distribution to let him or her know the type of information you will need to evaluate the request. Establish ground rules ahead of time for how the request is to be made and the types of documentation that they will need to provide.
• Explain to beneficiaries that the trustee has a duty to both income beneficiaries and remaindermen.
• Let beneficiaries know how the trust (and beneficiaries) are taxed on income earned in the trust and when to expect to receive their Schedule K -1s.
Tip #4 – Understand the difference between accounting income and accounting principal.
• Become familiar with the Indiana Uniform Principal and Income Act. Read the document to detennine if the trust agreement makes provisions contrary to the act (which it may) or whether the trust agreement gives the trustee discretion on allocating receipts and disbursements between income and principal.
• Explain to the beneficiaries what the term “net income” means. General (simplified) rule: interest, dividends, rents, royalties less 1/2the trustee fee.
Tip #5 – Document your files.
• Beneficiaries are entitled to inspect your files. Remember that as you write notes to the file.
• Beneficiaries have been known to be litigious (surprise, surprise). Keep copies of all correspondence and emails. Make written, contemporaneous notes of telephone conversations and meetings. Follow meetings up with letters confirming the discussion
Ms. Deeter’s bonus tip: Realize what you DON’T know and engage professionals to assist you.
I hope you polished your trust administration skills through Ellen Deeter’s review. If you would like to take advantage of the CLE program that includes her discussion of trusts, look for the Video Replay or On Demand Seminar of 120 Hot Tips in Probate, Guardianships, Trusts and Tax by Clicking Here.
About our Law Tips faculty participant:
Ellen M. Deeter earned her J.D. magna cum laude from Indiana University School of Law at Indianapolis in 1982. She started her career as an inheritance tax examiner for the Indiana Department of Revenue in 1978. Since that time Ms. Deeter has spent most of her career with bank trust departments, including Indiana National Bank, Wachovia Bank, N.A. and Merchants National Bank. She recently retired from The National Bank of Indianapolis, where she worked in various roles over 18 years, including serving as the Manager of the Personal Trusts and Estates Group and as Senior Trust Counsel. She also is a Certified Trust and Financial Advisor.
About our Law Tips blogger:
Nancy Hurley has long-standing connections with Indiana lawyers. She was formerly a member of the ISBA and IBF staffs for over 30 years. Nancy’s latest lifestyle venture is with ICLEF. We are utilizing her exceptional writing and interviewing skills while exploring how her Indiana-lawyer background fits with ICLEF’s needs. When she isn’t ferreting out new topics for Law Tips, her work can be found in our Speaker Spotlight blogs, postings on the ICLEF Facebook and Twitter pages, and other places her legal experience lends itself.
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