Have you been named Trustee in an IL Living Trust?

Your parent or loved one may have established a living trust in Illinois and named you as acting or successor trustee. What do you need to know and how can you be prepared for this role?

Here is a detailed explanation of a living trust.

Who establishes a trust?

The maker of a trust is referred to as a settlor or grantor of a trust. Often, the maker of the trust will name themselves as the first trustee of the trust.

What is the role of a trustee?

A trustee manages and distributes funds and/or assets owned by the trust for the benefit of the trust beneficiaries.

What’s the purpose of a trust?

• To act similarly to a guardian, managing and distributing funds for the benefit of a person or persons who can’t manage their own financial affairs, such as a child, or a disabled adult. The disabled adult might be the maker of the trust; or a spouse, child or other loved one of the maker of the trust.

• To act similarly to an executor of a will, collecting and distributing the assets to beneficiaries after the maker of the trust has passed away. The trustee will pay the grantor’s death related expenses such as the funeral, final tax return, and pay or settle trust debts such as mortgages and credit card balances. The trustee will also marshall trust assets and invest, or sell and finally distribute those assets to the beneficiaries. Unless the trustee is the maker of the trust, the trustee must properly file trust tax returns, and keep proper accounts and records of the trust’s financial transactions.

How long does a Trustee Manage the Trust?

• The trust management may be for a short period of time or a longer period of time depending on the purpose of the trust and what the trust directs.

• For example, after the grantor dies, a trust may instruct the trustee to simply begin trust administration of paying death-related trust expenses and thereafter distributing the balance to the beneficiaries, and then close the trust.

• Alternatively, a trust may direct that a new trust within it springs to life after the grantor’s death, and that springing trust may be open for a longer period of time. Some common examples of a springing trust are:

  • a special needs or supplemental trust for a disabled adult, which would remain in force for the lifetime of the disabled person (or until the trust ran out of funds),

  • a trust for minors which would stay open until minors reach a certain trigger age outlined in the trust;

  • A credit shelter trust to protect the assets from creditors of the grantor or grantor’s spouse;

  • a spendthrift trust for an adult beneficiary who is not able to manage money well, and could remain in force until that adult reaches a certain trigger age of maturity or for the lifetime of the beneficiary, depending on what the trust maker desired.

Common misconceptions:

• A trustee must be savvy in areas of:

  • bookkeeping and accounting

  • Trust laws and legal procedures

  • financial investments and wealth management

  • Managing real estate and other assets such as Insurance, annuities, retirement accounts and other securities

• A trustee will not be paid for their services

• A trustee must be a sophisticated individual who can make good judgment calls

Every trustee is advised to:

HIRE AN ACCOUNTANT (CPA) to:

• Keep financial payment records

• File required tax returns

• Give tax advice relative to trust administration requirements and deadlines

HIRE AN ATTORNEY to:

• Advise the trustee about the legal process and requirements in trust administration

• Answer questions from beneficiaries

• Advocate for the trustee if there is a dispute between the trustee and beneficiaries

HIRE AN INVESTMENT ADVISER (or wealth adviser or CFP) to:

• Invest the trust funds according to law

• Illinois law allows trustees to delegate investment functions to a financial advisor (this shifts some of the liability off of the trustee for prudent investing)

Trust language and/or Illinois laws typically provide:

• Trustees are entitled to payment for their services

• Trustees may be refunded for trust related expenses paid out-of-pocket

• What is the time frame, specific assets, and amounts payable to the beneficiaries