Routine Issues and Standard Steps for Trustees - Essay Example

Equity and Trust By of [Word Count] Introduction Whenever an individual dies, chances are that he/she leaves behind some assets, business affairs and interests, debts and tax returns that must be attended to by those left behind. For instance, a deceased (decedent) may leave behind some assets that require to be distributed according to his/her will or directives. Similarly, the debts of the decedent will have to be paid, his/her tax returns filed, and business interests settled as directed in a will. In many instances, the above functions are conducted by an individual or a company acting in a fiduciary capacity as an executor or as a trustee (Free willWriting.com, 2013). Whether the person involved is a trustee or an executor depends on the manner in which the decedent held his/her property. A trustee is an individual or a firm that holds responsibility, authority and position over a property on behalf of or/and for the benefit of another (Free willWriting.com, 2013). In a broader term, a trustee could also refer to a person who sits on the Board of Trustees for a firm that works in the interest of and for the benefit of the general public. Although often set up for charitable reasons, a trust could also be set up for the benefit of individuals. Thus, the key types of trust are a will trust for the testators family and children, a pension trust, and a charitable trust (Free willWriting.com, 2013). The executor on the other hand is the person or the trust company mandated to settle the estate of a testator according to the provisions of the will. This paper advises Trevor and Tony, an executor and a trustee regarding the distribution of Sam’s (the decedent) wealth and the settling of his/her business affairs and debts according to the provisions of the will left. In his will, Sam outlines how his assets are to be distributed to the beneficiaries. First, Sam leaves his 20,000 shares in BT plc to his trustees on trust. He directs the trustees to hold the bulk of these shares for his sister Margaret and the remainder for his four grandchildren in whatever shares the trustees deem appropriate. Second, Sam directs that his bronze statue of a musician to be given to his daughter Fiona, who should keep it safely for her grandchildren. Third, he directs that his trustees distribute £50,000 amongst the inhabitants of Greater London as the trustees deem appropriate. Finally, he directs that his executors distribute £300,000 amongst his friends. Further, in case the executors doubt who Sam’s friends were, his wife should help in identifying his friends. Routine Issues and Standard Steps for Trustees and Executors Notwithstanding the type of trust in question, the trustee and the executor (Tony and Trevor) could act as a company or as individuals mandated and required to execute certain fiduciary roles and to meet the liabilities of using Sam’s assets in line with the provision of the trust instrument/will (Free willWriting.com, 2013). That is, the wishes or interests of Sam’s beneficiaries and those of the Tony and Trevor must not take precedence over the provisions of Sam’s will. In fact, there are situations in which Trevor and Tony could find themselves personally liable for mistakes made in the execution of the provisions of the will (Free willWriting.com, 2013). These liabilities are majorly with regards to prospective beneficiaries, claimants and third parties and often occur in the event of excesses by trustees and executors by way of litigation, taxes, or under the terms of a lease. With regards to the need to meet their fiduciary obligations, trustees and executors are required to be prudent people or companies. According to Lindley L. J. in the re Whiteley (1886) 33 ChD 347, 355 and as in the Learoyd versus Whiteley (1887) 12 App.Cas. 727, executors and trustees should act as normal prudent persons entrusted to make investments for the benefit of others. In addition, the high esteem and standards with which trustee are regarded emanate from their legal and professional expertise. Although they could be highly trained and professional groups and individuals, trustees are only paid for their trouble in executing their duties if such a payment is provided for in the instruments of the trust in question. Interestingly, many lawyers draft wills, which provide for trustees to be paid (Free willWriting.com, 2013). There are several routine issues and standards that Tony and Trevor should adhere to in the execution of their responsibilities as caretakers and distributors of Sam’s wealth according to the provisions of the will. Like in many other cases, these standards target activities that have occurred since Sam’s death. The first and most important of these routine issues is to wholly understand the will at hand. The main reason it is important to thoroughly read and understand the will/trust being to enable the trustee and the executor to know who the beneficiaries really are, the portion of the assets each is to receive, the years the trust will run, and any co-fiduciaries named (The Charity Commission, 2013). This thorough reading will also help Trevor and Tony to know if everything in the will is clear and given outright. In this regard, they must check whether there is any new trustee created in the will or if the trust mandates certain distributions such as that of income to family members or whether such distribution is left to the discretion of the trustee (The Charity Commission, 2013). For instance, the trustee/executor may be given the mandate to distribute any income as he/she deems necessary to the beneficiaries. Trevor and Tony should also been keen to identify the assets or income that Sam directed to be used to pay taxes, bills and expenses (The Charity Commission, 2013). Importantly, they should thoroughly understand the powers that Sam grants them in the will. In case they do not understand some sections of the will, they should obtain the services of an attorney who specialises in the areas of estates and trusts to help them execute their duties (The Charity Commission, 2013). In fact, an attorney’s advice would be quite helpful in ensuring that Tony and Trevor understand the will plus all the applicable state laws. The other vital element of trust administration that the trustee and the executor should be conversant with is probate. In this regard, they should establish whether probate is necessary in the execution of their responsibilities as fiduciaries. Probate refers to the official legal procedure by which a will is recognized and the trustee/executor is appointed and given the powers to administrate or distribute a decedent’s assets to the listed beneficiaries (The Charity Commission, 2013). Since different states have different laws on the establishment of a probate, it is of the essence that a trustee or an executor seeks the opinion of an attorney to establish whether a probate is necessary or not (The Charity Commission, 2013). The attorney will hence inform them if they require to be bonded and the reports they will be required to make as far as the distribution of the decedent’s assets is concerned. Fortunately for Trevor and Tony, the need for them to be bonded is already relinquished since the will mentions them as trustee and executor. Nonetheless, in cases where a probate proceeding is necessary, trustees should not worry about a probate procedure since it is never an expensive or a prolonged affair. Advice on the Management of Estate Assets An important aspect of Tony’s and Trevor’s responsibilities would be the management of Sam’s assets before handing them over to the beneficiaries. Core among their fiduciary functions would therefore be to take control of all of Sam’s assets as directed in the will. One cardinal rule that should guide Trevor and Tony as a trustee and an executor is never to ignore the financial interests of Sam’s beneficiaries. Otherwise, this would lead to cases such as the Cowan versus Scargill [1985] Ch 270 and the Harries versus the Church Commissioners for England cases in which the contentious issue was the extent of the discretion of trustees to make decisions and investments for the benefit of beneficiaries. As evident in the Duke of Portland versus Topham (1864) 11 HLCas 32 case, trustee and executor powers and privileges should be exercised fairly and honestly and for the intended purposes but not for the accomplishment of other concealed purposes for the benefit of the trustees/executors or otherwise. It would also be crucial to secure and value all these assets upon Sam’s death. Among Sam’s assets that Tony and Trevor should secure and value include but are not limited to shares, brokerage accounts, household furniture, automobiles, jewelry, artwork and collectibles (The Charity Commission, 2013). This work should always be done by a professional appraiser, who should value the decedents tangible property, more so, the rare or unusual items such as the bronze sculpture. As holders of fiduciary responsibilities, Trevor and Tony should also check into the debts and unpaid bills at the time of Sam’s death and clear any outstanding bills or notify any creditors of impending delays and the intent to pay the bills. It should be noted that the estates left under the care of a trustee or an executor could be harmed if such bills, including insurance bills or real estate taxes, are not cleared in time (The Charity Commission, 2013). Trevor and Tony should not act like the trustees in the Abacus Trust Co versus NSPCC [2001] WTLR 953, case who rightly took advice on how to minimise tax liability but did not implement the advice until after the tax year’s end. Trustees and executors should also be in a position to pay for the expenses incurred in the administration of a trust. Fortunately, these expenses, including insurance premiums, attorneys charges, accountants fees, funeral expenses and appraisal fees, are often easily payable from the decedent’s assets. What is important is that the trustee carefully keeps clean and updated records and receipts so that they are easily obtained when need arises (The Charity Commission, 2013). Trustees and executors should also be on the lookout for any specific gifts and cash in a will that are mentioned for specified recipients. For instance, statements such: "My grandfather clock to my granddaughter Nina or Sam’s statement that “I leave my bronze statue of a musician to my daughter Fiona, expecting she will keep it safely for her grandchildren,” should be keenly isolated and such provisions addressed before distributing other portions of Sam’s assets (Fontaine, 2004). After distributing such specific assets, the residue could be distributed outright or if provided for, special trust such as that for a surviving spouse or children should be executed. In this case, Trevor and Tony should ensure that the bulk of Sam’s 20, 000 shares in BT plc is held for his sister Margaret and the remainder held for his four grandchildren in whatever shares the trustees consider appropriate. However, even if grandchildren were not mentioned, they would be considered as part of marriage as seen in the Pullan versus Koe [1913] 1 Ch 9 case. The other core element of trust administration that Trevor and Tony should be careful about is the closing of Sam’s estate. This closure occurs at the time a trustee and an executor have paid all taxes, expenses, debts, received tax clearances, and has distributed all assets as required by the provisions of the will (Fontaine, 2004). The two chief ways in which Sam’s trust could be terminated are when the date indicated arrives or an event set to signal the termination occurs. Thus, the trust could terminate when a beneficiary dies or when a beneficiary reaches a given stated age. Nonetheless, most wills give the fiduciary a period within which the actual distribution of assets should be executed (Fontaine, 2004). Although some states or laws may require the filing of court petitions prior to the commencement of asset distribution, in informal situations, it only requires the presence and the signatures of all the beneficiaries for distributions to be made. However, the documents to be signed should be prepared by attorneys so that all the beneficiaries’ approval for the fiduciary actions of the trustee and the receipt of assets duly are acknowledged (Fontaine, 2004). The role of these signatures is to protect the fiduciary from future claims and litigations by the beneficiaries. Conclusion An executor and a trustee are legal entities authorised by a maker of a will to execute his/her directions as indicated in the will. In short, a trustee or an executor offer wills for probate in cases where the law requires and disburse property to the beneficiaries as directed in the will after obtaining information about the heirs. In addition, they collect and arrange for debt and tax clearances after approving or disapproving creditors claims. Trustees and executors should also ensure estate taxes are well calculated, necessary forms are filed and tax payments made. All these should be done with the help of an attorney to ensure all legal requirements are met. Considering the legal and personal implications of the fiduciary duties of executors and trustees, it is clear that these activities must be undertaken within the confines of the law so that claims and litigations do not arise in future from debtors, claimants, tax officers, or beneficiaries. It is thus imperative upon trustees and executors to be not only professional but also ethical in the execution of their mandate to the beneficiaries and other parties to a decedent’s will. A trustee or an executer being an individual or organization mandated to hold, manage, and/or invest assets for others’ benefits is thus lawfully indebted to make all decisions connected to the trust with the beneficiarys interests at heart. Notably, executors and trustees could be liable for damages in the event of not following the law and not doing the bidding of the grantor and the beneficiaries. However, they are only entitled to payment if provided for in the will. References Fontaine, C. (2004) Fundamentals of estate planning. The American College Press Free willWriting.com (2013) “Executor of Will-Duties.” Retrieved on March 21, 2013 from http://www.freewillwriting.com/html/executor_of_a_will_duties.html The Charity Commission. (2013) “CC3 - The Essential Trustee: What You Need To Know.” Accessed on 2003-03-1 http://www.charity-commission.gov.uk/Publications/cc3.aspx#f2 Read More