A revocable trust established during your lifetime can help care for loved ones after your death. It can also help reduce state inheritance taxes.
Money market funds consist of various short-term investments such as certificates of deposits, repurchase agreements, commercial paper, and short-term U.S. Government or agency obligations. Examiners should ensure that these investments are prudent for the accounts involved.
Trustees often have questions concerning a variety of trust administration matters. These include investment of nondiscretionary assets, tax issues and filing obligations, and administration fees. I am available to assist trustees with these and other trust matters.
Generally, the investment of nondiscretionary cash is governed by the terms of the governing account agreement. However, there are occasions when the governing account agreement needs to contain a specific direction regarding cash investment. In these situations, the trustee should seek sufficient authority to invest such assets from the language of state law or regulations, court decisions, written and binding consents from all account beneficiaries or other appropriate parties, or, in the absence of any of the above, the Prudent Investor Rule.
Many institutions now offer services that automatically sweep excess available cash following predetermined dollar limits to money market funds. While these arrangements may have benefits, examiners should ensure that such investments are prudent for each discretionary account and that the institution has adequate policies and procedures to monitor and review this activity.
Similarly, funds that pay 12b-1 fees should be carefully analyzed before purchase and periodically reviewed by management. For more detailed information on particular products and their risks, examiners can consult the Capital Markets Examination Handbook or Manual of Examination Policies for safety and soundness examinations.
A competent Trust Administration in California team can save time through efficient and effective processes. This helps ensure that the trustor’s wishes are carried out, assets preserved and distributed as intended, and that the Trust complies with all legal and tax requirements.
Typically, a new bank account will be opened in the name of the “administrative trust” to track expenses. The trustee will also need to perform an inventory of all the assets held by the Trust (including financial and real estate). This can include locating accounts with named beneficiaries such as IRAs and 401(k)s and determining the property title in a trust-owned piece of land.
Trustees can invest assets according to governing trust instruments, state law, and their investment policy. As a general rule, fiduciaries must invest trust assets prudently, as if they were their own, considering the needs of beneficiaries, preservation of the principal, and the generation of regular income. Depending on the type of account, this can preclude hazardous investments, such as junior lien loans or investments in REMICs.
Trustees may invest cash holdings in money market funds, certificates of deposit, repurchase agreements, and commercial paper. After evaluating the issuer’s creditworthiness, the fund’s underlying investments, and policies for selecting and reviewing non-rated assets, investment decisions should be made.
A person who creates a trust entrusts monetary assets to a third party, known as a trustee. A person’s trustee responsibilities can include the management of all trust assets, calculating and filing taxes applicable to the Trust, and administering the Trust upon the death or incapacity of the original trust grantor or their successor. As a trustee, you are exposed to personal liability and potentially civil lawsuits if you follow specific legal requirements and procedures. Our firm can assist you in avoiding these pitfalls through expert advice and guidance on various trust administration matters.
Trustees must invest trust funds with due diligence, following the “prudent investor standard” that a fiduciary must treat all investments as if they were their own. In addition, assets must be suitable for the account and the beneficiaries. Some types of investments are not considered imprudent, such as junior lien loans and speculative investments, if the asset meets specific criteria, including suitability to the account’s needs and objectives, the presence of particular authority in the governing instrument or state law, or binding consent from all charges or beneficiaries.
Because of these considerations, trust departments must institute written policies that affirmatively address the routine evaluation of all discretionary assets not contained on an approved list. We can help you with these and other policy issues and provide a thorough analysis of non-rated investments purchased for discretionary accounts.
Whether or not trustees are paid for their services, there are costs associated with the trust administration process. These include legal and financial professional fees, tax filings, investment expenses, and administrative fees. A lawyer can help trustees minimize these costs by advising them on their legal responsibilities and state-specific laws concerning the administration of estates and trusts.
Trust assets typically need to be valued regularly for accounting purposes and for preparing annual tax returns (IRS Form 706) and IRA account statements (IRS Form 709s). These evaluations can involve complex calculations. A lawyer can guide this process and help trustees keep records organized so that the preparation of tax return documents is less time-consuming.
As fiduciaries, trustees must follow the “prudent investor standard” when investing trust assets. This means that the manager of the Trust must make investments based on the needs and investment objectives of the beneficiaries, provide regular income to them, and preserve the asset value of the Trust. Whether or not the governing instruments of a trust contain explicit authority for using an option writing strategy, the department should be able to document that such systems are consistent with approved investment policy and follow prevailing industry practices.