Residents of California may wonder what is involved in trust administration. A trust has two parts, income and principal, and the administrator, also known as the fiduciary, is in charge of managing both of those parts. The principal consists of all the assets that are in the trust, while the income is paid out to beneficiaries. The beneficiary may also eventually inherit the principal or receive income until death. At that time, the principal may pass to another beneficiary.
A fiduciary is responsible for making sound decisions in managing the assets and investments and avoiding taxes as much as possible. As a result, a financially inexperienced fiduciary is often advised to seek expert advice. Beneficiaries will want to know that fiduciaries are investing wisely, and a written investment plan can help reassure heirs about the fiduciary’s intentions.
Fiduciaries may make decisions about how income is distributed to beneficiaries. For example, a fiduciary may choose a combination of securities and cash. However, each trust is different, and fiduciaries must follow the rules of the trust.
Income tax is another responsibility of the fiduciary. In addition to providing a statement to beneficiaries who receive taxable income from the trust, a fiduciary is responsible for filing taxes on the trust. The fiduciary can be liable for any penalties as a result of late filing.
Because the job of trust administration can be complex, an individual who has been appointed as a fiduciary may want to consult an attorney. Even an individual who has acted as a fiduciary before may need guidance, as every trust is different. The individual may have previously administered a revocable trust and may now be faced with a special needs trust, an irrevocable trust or some other type. An attorney may also be helpful in setting up the right trust for individuals who are estate planning.
Source: American Bar Association, “Guidelines for Individual Executors & Trustees,” Accessed March 17, 2015