Understanding a trust statement means first learning what a trust is and how it works to help you plan your estate. Estate planning is the process of deciding how you want your assets to be distributed and which parties will benefit if you become incapacitated or after you die. These assets can include real property like houses, vehicles, jewelry and cash, and other kinds of investments such as IRAs and stock market securities. Creating a trust is one of the primary ways to plan for your estate. Writing a will is another.
How a Trust Works
A trust is a legal document that enables you or your representative to manage your assets on behalf of one or more beneficiaries while you're alive, as well as after your death or incapacitation. Revocable living trusts typically allow you as the grantor to remain in control of your assets until you're incapacitated or you've died.
Irrevocable trusts give management of your assets to a named trustee who will oversee them on behalf of the beneficiaries. They're designed to be nearly impossible to undo or amend. You can't take assets back after you've placed them into one.
There are also testamentary trusts. These legal estate-planning vehicles are created under the direction of instructions left in a last will and testament. They don't exist until after the grantor has died. They offer another way for you to remain in control of your assets until your death, after which point the assets will be managed on your beneficiaries’ behalf by a trustee.
Who Is a Trustee?
A trustee is a fiduciary who is legally responsible for managing the assets within a trust on behalf of the designated beneficiary or beneficiaries. As such, they maintain control of those assets. But they're legally obligated to be accountable for their actions.
You would typically act as your own trustee if you create a revocable trust. You can also appoint a successor trustee to take over upon your death or upon your incapacitation. You can continue actively managing your trust in the meantime. But an irrevocable trust requires an independent trustee to manage the trust on the beneficiaries' behalf.
What Is a Trust Statement?
A trust’s legal representative may be a lawyer, friend or even a company. They must produce trust statements for accountability purposes.
Trustees are generally supposed to periodically send statements to the beneficiaries on whose behalf they act. These statements should provide detailed information about the trust's assets and liabilities, its income or losses, what compensation the trustee is receiving, any trust agents the trustee may have hired and their pay, trust operation receipts and tax returns associated with the trust investments.
Ideally, you should get a trust statement at least annually. But you could request semi-annual or quarterly statements for accounting purposes, depending on the terms of the trust.
It's worth noting that a trust statement is vastly different from a declaration of trust. The latter is the document that establishes the trust. It specifies when it is created, who the grantors, beneficiaries and trustees are, and how the assets within the trust are to be distributed.
Why a Trust Statement Is Important
Trust statements are essential because they give you a deeper insight into how the trust assets are performing. That, in turn, enables you to determine if the trustee is being responsible and honest when managing the trust on your behalf. And that information will guide you in deciding whether to sue the trustee for mismanagement in cases of possible malfeasance.
If you are the grantor and beneficiary of your own revocable trust, you won’t have to ask anyone else for trust statements. The law considers you responsible for your own actions because you would still be in charge of your trust assets.
But you have every right to demand periodic trust statements from your trustee if you're the beneficiary of an irrevocable trust or testamentary trust. You can write a letter requesting one. You can explore the court option to obtain the information you need concerning the trust’s financial performance if the trustee is reluctant to be accountable.
- Internal Revenue Service: Abusive Trust Tax Evasion Schemes – Questions and Answers
- Internal Revenue Service: Tax Forms and Instructions: Tax Rate Tables
- Internal Revenue Service: IRS Provides Tax Inflation Adjustments for Tax Year 2020
- HG.org: Estate Planning Basics
- American Bar Association: Revocable Trusts
- HG.org: Explanations of Irrevocable Trusts
- Consumer Financial Protection Bureau: Help for Trustees Under a Revocable Living Trust
- HG.org: Why Is a Successor Trustee Necessary in New Jersey?
- Cornell Law School: Declaration of Trust
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