A Trustee’s Checklist for Managing a Trust [Video]

Being named trustee and managing a trust is something you might experience in retirement. In this video, we talk through how a trust functions and the different roles associated. Then we will share the checklist of what it takes to distribute assets with tax efficiency.

Video Transcript

You’ve just been named the trustee of a trust. Now what?

Hi, my name is Michelle and I’m a financial advisor here at Financial Design Studio. We help business leaders transition into retirement. If you’re starting to think about your own retirement planning, you can download our free guide. In it, we share the two questions we ask client to help them through this process.

Now today we’re specifically talking about trusts. One of the financial responsibilities many people encounter in retirement is serving as a trustee for your parents’ estate. It can feel like a huge responsibility to manage someone else’s finances. You need to honor their wishes and also deal with family dynamics all at once.

What is A Trust?

So very simply, what is a trust? And a trust is a document that governs how assets should be managed. Let me draw this out so it’s easy to understand. You or someone that you love is the owner of something. This could be financial stocks, this could be a home, something like that. All you’re doing is changing the ownership from you personally to now an entity that isn’t you, but one you own.

Now, after you have this trust created or in the process, you name a trustee. This is someone who is going to manage this trust for you. If you’re no longer living, now this person is going to manage and do what you’ve told them to do in this trust document. That’s the trustee. You pick them to make decisions, and handle things for you once you no longer can.

Ultimately a trust is created because you have something you want to pass on to someone. And so what we call those people who you’re passing these onto is a beneficiary. Ultimately they’re receiving the distribution of or the funds from whatever you’re putting in the trust.

What is Your Job as Trustee?

So as a trustee, your job is to manage these assets or distribute these assets to the beneficiary. You are now the person to make sure that that happens.

Now I do want to highlight something that is not your job. When this trust was created, the owner of this trust decided who these beneficiaries were going to be. They decided what percentage they were each going to receive. You as a trustee, that is not your job. It can be very common as you start to work with beneficiaries, you’ll see that they’re inheriting 50% of an asset each and you may in your head think, well they don’t deserve this. But you need to remember, it’s not your job to make changes.

You will need to talk with beneficiaries. So you will need to make sure you can maintain good relationships with them. Like we mentioned, every owner of the trust can decide who the beneficiaries are. And so if you can talk with a different beneficiaries, sometimes you might be surprised that they actually have some expectations of how they’re going to receive their funds, when they’re going to receive their funds or how they don’t want to receive them.

One of the biggest goals as a trustee is that you want this process to go well. You’re trying to do a great job of managing and distributing assets to the beneficiaries in the best way, the most tax efficient way that you can. So it is really important to have a good relationship with them and as much as you can, if you can distribute things the way they want to, that’s really great because then you’re helping them accomplish what they need to as well.

What’s the Process?

1. Legal Documents to Gather

All so let’s talk a little bit about the inheritance process and some of the steps in being a trustee. So we’ll put together this trustee checklist to kind of help you walk through and understand what needs to be done.

In the beginning, the first thing is that you’re really making sure that you have a death certificate. Usually the funeral home will order these for you. It’s making sure that you’re getting the quantity you think you’ll need, but getting those death certificates because that will be needed in any of these things you do to prove that someone has passed away.

And then also you need a copy of the trust. So this trust document that we just talked about that has been put together, drafted by the owner, that’s what says this is what needs to happen. So you need a copy of that trust.

And then thirdly, I would say is that you start to identify who the professionals are that are going to help you in this process. Now, this can be, for example, an accountant. This could be an attorney and a financial advisor, a team of those few people, or maybe the attorney that you’re working with already handles a state tax or the financial advisor can help with the tax implications as well. But I would say a combination of two to three of those specific professionals.

2. Paperwork to Complete

Now one of the big tasks, honestly, that happens or that trustees need to be able to do is paperwork. And that will not sound like a very fun thing, but honestly, there is a lot of paperwork. And depending on the complexity of someone’s estate, their trust, all of the accounts that they have, the assets that they have, there could be a lot of paperwork. But it’s also really important to know if you’re even naming a trustee for your trust, that these are the things that you need them to be able to do.

So first, some of these little ones are things like just paying bills. Being able to pay bills, whether that was final bills, whether someone lived in a living community or whether they still lived in their home and maybe there’s medical bills from the hospital, things like that that need to be paid.

Next, it could be paperwork to consolidate and maybe even distribute some of these financial accounts. So for example, a trust can actually last many years or it could just say, once I pass away, these assets need to be distributed right away to these beneficiaries.

Another thing that you might need to do is to sell assets. So again, in selling assets, there’s going to be paperwork that needs to be handled.

3. Find Statements

One of the other things that you’ll need to be able to gather or find or know where these things have been left are things like statements for accounts or even maybe a deed of property or titles for a car, things like this, because again, if you’re needing to sell these assets, you’re gonna need to know where these documents are.

And then finally, the paperwork to actually do the management of the trust account and the distribution. So for example, if you’re going to have checks distributed to beneficiaries, if you’re going to have actual stocks just transferred to beneficiaries, there’s going to be paperwork to actually make those pieces happen.

What are the Tax Implications?

Scenario #1

So let me show you two different scenarios to explain and help you see the tax implications of how you distribute these assets.

In this first scenario, for example, we’re going to assume that someone has assets of a million dollars and these assets are financial assets. So think of stocks, bonds, cash. It’s a combination of those in accounts that this individual has in their trust. And what this in this first scenario, we’re going to sell everything that this person owns.

Once we sell everything in the trust, we’re going to distribute that to the beneficiaries, 50% each to the two beneficiaries. So they’re each going to get $500,000.

Now, whenever you sell financial assets, you have to consider was there a gain on those assets that I sold. From the time that the original owner passed away until now when we’re selling these assets, has there been a gain? If so, you are going to need to pay tax at trust tax rates.

And so what can happen with a trust is that you can very easily get to a 40% tax rate on the gains. And that’s why you really need to be thoughtful. The goal is not to pay a lot in taxes.

Scenario #2

Now, let me show you a second scenario to give you an idea of how tax planning works. So for example, we’re gonna say the same size account, we’ve got a million dollars. Similarly, it’s still in stocks, bonds and cash. And instead of selling everything, in this scenario, we are not going to sell everything.

Instead what we’re going to do is we’re actually just going to distribute again the $500,000 to each of the beneficiaries. But this time, we’re just going to transfer half of the stocks the bonds and the cash into these beneficiaries accounts that they want them transferred into.

So if there were gains, in this account, those are now just going to carry on to the beneficiaries. And now the percentage that it’s going to be taxed at depends on the beneficiaries tax bracket that they are in. To learn more about how taxes work for beneficiaries, check out this video!

When you look at the income tax bracket for individuals, whether that’s a single or married filing jointly, it takes a lot of income to get even close to the 40 % tax rate.

Now you’re choosing when you sell the stocks, so that you can now plan the taxes based on when you’re able to pay them, rather than being forced to pay them at this 40% high rate.

Checklist for Managing a Trust

This can be a win-win for everyone rather than just trying to simply move fast and quick and get things done. If you can just be a little thoughtful, have a little bit of strategy, you could actually help everyone in the whole process.

So if you’re starting to plan for your retirement, again, you can find our guide linked below.

And this is what we do best. Our team specializes in comprehensive financial planning and investment management. So you stay on track all year, every year, reach out to our team at to schedule a 30 minute consultation about your retirement plan.

We’ll see you there or in the next video!

Bonus: Our Free Retirement Planning Guide!