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Trust Law/Level VIII · Trusts of the world/8.3 Running a trust/Lesson 1

The trustee’s first ninety days

The steps a US trustee typically takes in the first weeks after being named: accepting or declining, reading the instrument, securing assets, getting a taxpayer number, notifying beneficiaries and building an inventory.

Education, not legal advice. Trust law changes from country to country and state to state, and the right structure depends on your situation. Anything you sign should be drafted or reviewed by a qualified lawyer where you live.

The lean path

The cheapest, lowest-tax, simplest and most private route the law allows, best first. Each step names the rule it rests on and the condition that keeps it lawful.

  1. Get the trust’s EIN free from the IRS, online or on Form SS-4, once a revocable trust becomes irrevocable; never pay a third-party site. Catch: the trust then files Form 1041 for any year with taxable income or gross income of $600 or more.
  2. Consider the IRC §645 election on Form 8855 to treat a revocable trust as part of the estate, for up to 2 years after death if no estate tax return is due. Catch: file it by the due date of the first Form 1041.
  3. Record date-of-death values from account statements, paying for appraisals only for real estate or private businesses, since most inherited assets take that value as basis (IRC §1014). Catch: missing values now mean costly reconstruction when assets are later sold.
  4. Give banks and brokers a certification of trust instead of the full instrument (UTC §1013); it need not contain the dispositive terms. Catch: the recipient may still require excerpts showing the trustee’s appointment and power for the transaction.
  5. Send the UTC §813 notices yourself within 60 days of accepting and of learning the trust became irrevocable: contact details, the settlor’s identity and the right to the instrument and reports. Catch: states vary these duties, so follow the enacted version.

MaterialsThe trust instrument and any amendments, and a certification of trust if one has been preparedUniform Trust Code §§701, 705, 809, 810 and 813 as enacted in a state, such as Maine Revised Statutes title 18-B, free on the legislature’s websiteThe IRS pages ‘Do you need a new EIN?’ and ‘Get an employer identification number’, with lessons 2.3.6 and 3.1.7 for background

Wonder

  1. What happens if a trustee accepts the role and later finds they cannot continue?
  2. Can a person named as trustee protect trust property before deciding whether to accept?
  3. What must a new trustee tell the beneficiaries, and by when?

Explore

  1. Under Uniform Trust Code (UTC) §701, as enacted in many US states, a person named as trustee accepts by substantially complying with a method of acceptance in the trust terms or, if the terms set no exclusive method, by accepting delivery of trust property, exercising powers or performing duties. A person who does not accept within a reasonable time after learning of the designation is treated as having declined. Without accepting, a named trustee may act to preserve trust property, if a rejection is sent within a reasonable time to the settlor or, if the settlor is dead or lacks capacity, to a qualified beneficiary. A trustee who later wants to leave can resign under UTC §705 on at least 30 days’ notice to the qualified beneficiaries, the settlor if living and any co-trustees, or with court approval. This lesson describes common steps and does not advise any trustee.
  2. The trust instrument is the starting point. Under UTC §801, a trustee must administer the trust in good faith, according to its terms and purposes and the interests of the beneficiaries, and many statutory rules are defaults that the terms can change. A first reading usually identifies the beneficiaries, which distributions are required or allowed, the trustee’s powers and any limits on them, and whether the trust is revocable or irrevocable. A revocable living trust usually becomes irrevocable when the settlor dies (lesson 3.1.7). Where a provision is unclear, a lawyer can advise, and a court can be asked for instructions (UTC §201).
  3. UTC §809 requires a trustee to take reasonable steps to take control of and protect the trust property. Under §810, the trustee must keep adequate records and keep trust property separate from their own, and, where feasible, the trust’s interest should appear in records kept by someone else, such as a bank or broker. In practice this often means confirming or changing the title of accounts and real estate into the trustee’s name as trustee, checking insurance on buildings and valuables, and redirecting statements. For a living trust, only assets actually transferred into it (‘funded’) avoid probate; assets passing under a pour-over will still go through probate first. Institutions often ask for proof of authority, such as a certification of trust (UTC §1013).
  4. In the US, a revocable trust run by its living settlor usually reports under the settlor’s own taxpayer number. The IRS says a revocable trust that becomes irrevocable, as usually happens at the settlor’s death, needs its own Employer Identification Number (EIN). The IRS issues EINs free, online or on Form SS-4, and warns against websites that charge for them. The EIN is used for the trust’s accounts and returns. A trust that is a separate taxpayer files Form 1041 for any year with taxable income, gross income of $600 or more, or a nonresident alien beneficiary (lesson 2.2.4). In some cases a trustee can elect under Internal Revenue Code §645 to treat the trust as part of the settlor’s estate for income tax.
  5. Under UTC §813, in states that adopted it, a trustee must notify the qualified beneficiaries within 60 days after accepting the trusteeship, giving the trustee’s name, address and telephone number. Within 60 days after learning that an irrevocable trust has been created or that a revocable trust has become irrevocable, the trustee must also tell them that the trust exists, who the settlor was, and that they have the right to request a copy of the trust instrument and to receive trustee’s reports. While a revocable trust’s settlor is alive, these duties are generally owed to the settlor instead. Many states changed these rules when enacting the UTC, so the enacted version matters.
  6. Under the Uniform Prudent Investor Act (1994) §4, within a reasonable time after accepting a trusteeship or receiving trust assets, a trustee must review the assets and decide which to keep or sell to bring the portfolio into line with the trust’s purposes and terms (lesson 8.3.2). A written inventory supports that review, later reports and tax returns. If the settlor has died, values at the date of death matter, because under Internal Revenue Code §1014 most inherited assets take that value as their tax basis; appraisals help document real estate and closely held businesses. Debts, expenses and taxes generally come before distributions, and records of every receipt, payment and decision form the basis of the accounts discussed in lesson 8.3.3. Timelines vary by state and trust.

Key facts

  • Under UTC §701, a named trustee accepts by following the method in the trust terms or by taking delivery of property or acting as trustee; not accepting within a reasonable time counts as declining.
  • UTC §705 lets a trustee resign on at least 30 days’ notice to the qualified beneficiaries, a living settlor and any co-trustees, or with court approval.
  • UTC §809 requires a trustee to take reasonable steps to control and protect trust property; §810 requires adequate records and separation from the trustee’s own property.
  • The IRS says a revocable trust that becomes irrevocable needs its own EIN; the IRS issues EINs free of charge.
  • Under UTC §813, a trustee must notify qualified beneficiaries within 60 days of accepting and within 60 days of learning the trust is or has become irrevocable; states vary.
  • Under Uniform Prudent Investor Act §4, a trustee must review trust assets within a reasonable time after accepting and decide which to retain or sell.

Exercise nine, six, three, one

9CollectList up to 9 tasks a new trustee might face, from this lesson or a trust you are reading about (some sources give fewer), such as accepting in writing, retitling an account, obtaining an EIN, sending the 60-day notice or ordering an appraisal.
6ClusterSort them into 6 categories: acceptance, reading the terms, control of property, tax identification, notice to beneficiaries, and inventory and records.
3DistillReduce the 6 categories to 3 groups: tasks set by trust law, tasks set by tax law, and tasks set by the trust instrument itself.
1CrystallizeWrite 1 sentence explaining, in your own words, why the 60-day notice under UTC §813 matters to beneficiaries.

Fact check

Dates, figures and claims checked against the published sources listed below.

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