A living trust is a trust formed and funded during your lifetime, as opposed to a testamentary trust, which is created as part of your will. A living trust is managed by a trustee, or administrator, who is held to strict standards of fiduciary responsibility, which requires that the administrator employ fair dealings toward all beneficiaries and prudent investment of the trust's funds. Choose a skilled, efficient financial administrator to ensure that your intentions for your living trust are fulfilled.
Duties of a Living Trust Administrator
A living trust administrator must follow any explicit instructions in the trust document regarding investment and distribution of trust funds, abide by strict fiduciary responsibilities to be impartial concerning the beneficiaries, and act in good faith. He must also wisely and prudently invest the assets of the trust. The trust administrator must keep accurate records, provide regular reports to the trust beneficiaries and file all necessary tax returns with the appropriate tax payments on trust income. You can instruct your trustee to manage trust assets for your benefit while you are still alive -- including taking care of your bills and other affairs, if you have become medically incompetent. Upon your death, your successor trustee's duties would then shift to managing the trust for your beneficiaries.
Naming Yourself or an Outside Trustee
If you create an irrevocable living trust, you must name someone other than yourself as the trustee. For a revocable living trust, however, you may name yourself as trustee during your lifetime. You would then name a successor trustee to take over administration of the trust if you become incapacitated, as well as after you die. You can choose to name someone else as the trustee of your revocable living trust, or name a co-trustee. Naming a bank or attorney to be a co-trustee with you during your lifetime enables you to benefit from their investment and trust management experience -- and for you to determine if you are comfortable naming them as your successor trustee.
Naming Friends or Relatives
You may choose a trusted relative or loved one to administer your living trust, but the time-consuming, strict legal duties and responsibilities of a trustee will be applicable to that person. If the trust is complex, or your relative doesn't have a lot of experience or skill with trust administration, problems may arise. Innocent errors may create significant costs to the trust. Naming a child or sibling as trust administrator may also create conflict within the family, especially in a family already marked with divisions, or where assets are to be unevenly divided. You might consider naming a friend or relative as a co-trustee along with a professional trust management firm.
Naming a Bank or Attorney
Bank trust departments or trust companies are professional entities that have extensive experience managing trusts that hold a wide variety of assets, from investment funds to businesses. These corporate trust administrators, as well as law firms that serve as trustees, are familiar with the reporting and tax filing requirements for trust administration; thus, they may be less likely to miss deadlines or make errors that friends or relatives might make if unfamiliar with trust administration. Trustees are entitled to charge reasonable fees for their services, so be certain that you determine what a bank or attorney will charge for their time before naming them as administrator of your living trust.