Whether you are considering who to appoint as a trustee or you have recently accepted an appointment, you need to know what the role entails. The basics are to manage, preserve and administer assets on behalf of another person.
In some cases, it may make sense to appoint an arm’s length professional. In others, a family member may have the skills to take on the responsibility. But for those who do not frequently handle these obligations, it is good to touch base with a local attorney who offers fiduciary representation to get answers before making any mistakes.
Authority and duties
Colorado law holds trustees to a high standard of care as fiduciaries. This means if you are appointed, you need to understand the extent of your authority and how long the duties will extend.
The Denver Bar Association offers some guidance and outlines the ethical and administrative duties. Some of the ethical duties include:
- Impartiality – You cannot favor one beneficiary over another
- Loyalty – You need to avoid conflicts of interests
- Prudent, careful decision making – You must keep trust assets separate from your own and stay away from transactions from which you personally benefit
Administration starts with registering the trust agreement with the Probate Court. Forgetting this step can result in penalties. Even though registration with the court is required, a court does not usually have ongoing involvement. The next step is to notify all beneficiaries with a Trust Registration Statement.
Ongoing administrative duties include keeping track of financial records and providing accountings on an annual basis. Taxes must also be paid and it is necessary to obtain a Tax Identification Number from the IRS to file state and federal returns. Managing the assets requires following the Colorado “prudent investor rule.” For a practical matter, it might be best to have a financial company manage the assets.
In a future post, we will discuss distributions. Clear instructions ensure that the trustee knows the intent of the person who creates the trust (called the settler). We will explain what can go wrong and how to avoid these issues.