Explanation of a Living Trust

Let’s say you own a diamond ring, a house, a cat, furniture, and a bank account with $20,000.00. At law, there are 2 elements of ownership. There is the legal ownership and there is the beneficial ownership of any property (a “property” here means personal property and real estate). In this case, you have legal and beneficial ownership of those properties. However, if you create a Trust and place all that property into the Trust, you divide those two elements. The Trust now has legal ownership and whoever you named as “beneficiary” has the beneficial ownership of those properties. If you named yourself as beneficiary, it means that you no longer own the property legally, but you have reserved the right to use the property for your own benefit. So, when you pass on, then you no longer own any of those properties and thus, there is no need to open an estate in Probate Court.

The Essential Duties of a Trustee

In the state of Indiana, and indeed, in every state, there are statutes (laws) in place dealing with the duties and responsibilities of a Trustee. Essentially, a Trustee is a person who is entrusted as a fiduciary (someone who controls the financial assets in the Trust for the beneficiary of the Trust). See Ind. Code § 30-4-3-6(a). & (b).  A Trustee is the person or persons appointed by the Grantor (the one who created the Living Trust) to be responsible for the possession, care and distribution of the assets within the Trust consistent with the terms of the Living Trust. Sometimes, Grantors want a bank or other such entity to be the Trustee, which is permitted in Indiana.

Basically, a Trustee of the average Living Trust (sometimes called a “Loving Trust”) will have to pay the bills of the Beneficiary or Beneficiaries named in the Trust, perhaps file income taxes, and at some point, close out the Trust when all the assets have been distributed.

A typical Trust will involve a husband and wife who create a Living Trust. They are called the Grantors. They will almost always be the Beneficiaries as well. In addition, it is not uncommon for them to also be the Trustees. Sometimes, only one of them will be the Trustee with the other one named as a Successor Trustee. And, it is common for the children to be named as Successor Trustees. They are often selected in order of age, but it may be in order of the closest in location to the Grantors. It is possible to select all the children to serve as Co-Trustees, or for two of them, but it is more common for one to serve and the others to serve as Successor Trustees.

The Essential Powers of a Trustee

A Trustee has the power to do whatever the Trust instrument allows. In addition, Indiana Code gives 27 different powers to a Trustee (See IC § 30-4-4-3). Realize that the duties and the powers of a Trustee can be reduced or expanded beyond the statutory limits. For example, a Trust Instrument may specifically “hold harmless” a Trustee for his or her investments of the Trust assets. That would mean that even if a Trustee was less than prudent, even reckless, there may be no violation of the statutory duty of the Trustee. But, even a “hold harmless” clause might not excuse the Trustee in all circumstances, so the wiser course of a Trustee is to follow the “prudent investor” rule.

The Practical Aspects of Being a Trustee

In practical terms, here is what an average Trustee might expect to do if she is selected as a Trustee, or a Successor Trustee.

  • 1. Sit down and read the Trust instrument. It probably would be wise for you to meet with the attorney who drafted the instrument and go over it with the lawyer to understand it.
  • 2. Ascertain what assets you are responsible for holding, investing and/or dispersing.
  • 3. Take control over the financial accounts. You’re going to need to show the bank the Trust document and, if you are a Successor Trustee, you’re going to need to show them why you are now the Trustee. If the Grantors have deceased, you’ll need to show the bank or financial institution, the death certificates. If you have become a Trustee because of the ill health of the former Trustee, perhaps the surviving Grantor, then you’re going to have to explain to the satisfaction of the financial institution, why you are now the Trustee. This may require a letter from a doctor indicating the incapacity of the Trustee. Sometimes, all that is necessary is a statement from the Trustee that he or she is surrendering the role of Trustee and appointing you as the new Trustee. See a lawyer to prepare a document to accomplish that.

There may be other things that need to be done. You may have to sell the real estate. At some point, if the Grantors become deceased or if they can no longer live in the home (and there are no issues regarding Medicaid), then you’ll have to liquidate the estate. In short, you’ll need to convert all the assets into cash. This might require you to contact a realtor, or a stock broker, or an insurance agent, or other professionals, including an attorney or an accountant.

All in all, a Trustee is a demanding job. It isn’t a role you should take on unless you understand that you have certain responsibilities that are imposed upon you by law. Sometimes, you have to do things in a timely fashion. If you ignore some timelines, you could cost your beneficiaries money, which means you could ultimately be responsible for the losses. The role of a fiduciary means you have a duty to the beneficiaries of the Trust to act in a responsible fashion with regard to protecting and investing the assets of the Trust.

For an expanded understanding of what the duties and powers of a Trustee of an Indiana Living Trust is, contact an Indiana lawyer experienced at drafting Estate documents, including Living Trusts.

For more information, see the following resourcces:




Related Posts: