The Roles Of Trustees And Beneficiaries

Trusts are a vital part of the wealth planning process. A trust can facilitate the efficient transfer of wealth from one generation to the next, as well as enable a family to reduce estate taxes, avoid the probate process and meet philanthropic goals.

The most effective trust relationships start with a clear understanding of the roles and responsibilities each interested party assumes with respect to the trust. The person establishing the trust (the grantor) obviously plays a significant role, as the grantor is responsible for setting the trust up and funding it. However, the trustee and beneficiary are also tasked with ensuring the terms of the trust are followed and respected at all times.

The trustee’s role

When establishing the trust, the grantor names a trustee to manage and administer it. In general, the trustee is tasked with carrying out the instructions of the trust, as well as being a good steward of its assets.

Good stewardship of the trust begins with prudent portfolio management. A trustee must invest and manage trust assets responsibly, taking into consideration the trust’s total returns from income and growth, the purpose of each asset within the portfolio, liquidity needs, asset preservation, potential tax consequences and general economic conditions.

The trustee must balance managing the current beneficiaries’ access to funds and preserving the assets for the remainder beneficiaries. This dual mandate can often be at odds; after all, distributing a trust’s assets depletes the trust for the future. However, focusing completely on asset preservation may deprive current beneficiaries of income and principal distributions from the trust—one of the reasons it was established in the first place. Therefore, the trustee must approach investing and distributions with this balance in mind.

Whether making investment or distribution decisions, trustees are responsible for tracking the trust’s activities and informing beneficiaries of what’s happening. They are also tasked with representing the trust in any legal matters that may arise, filing the trust’s tax return and submitting any other required filings.

The beneficiary’s role

Although the trustee is responsible for managing and administering the trust, beneficiaries also have responsibilities. In most successful arrangements, beneficiaries know the trust’s purposes and terms. They should also stay informed about the investments and assets of the trust, understanding what circumstances need to exist for a trustee to make a distribution. The trustee may need to consider several factors before making a distribution, including:

· Statements by the grantor in the document regarding the purposes for which the trust assets are to be used

· Direction from the grantor about whether or not other resources should be considered first

· Documentation from the beneficiary regarding the intended use of the distributed funds

· The amount of the distribution in relation to the size of the trust

· The income tax consequences to the beneficiary

Above all, beneficiaries and trustees should work together to make the relationship a productive one. All parties should have the most up-to-date copy of the trust documents and a clear understanding of the trust’s provisions and purposes. If they do, they are more likely to enjoy a harmonious, drama-free relationship, just as the trust’s grantor intended.

Could a trust be the right solution for protecting wealth and transferring assets to the next generation? Visit CIBC Private Wealth to learn more about how we can help your family establish and manage a trust.