Fiduciary Requirements for Grantor Trusts
Trustees in grantor trusts assume fiduciary responsibilities for the protection and administration of the trust. Some of these responsibilities are ethical and others are legal. Trustees are responsible to the grantor of the trust, the trust's beneficiary or beneficiaries, the government and, most importantly, to the assets of the trust itself.
Other People Are Reading
-
Grantor Trust
-
A trust is a legal entity created to manage, own and protect an individual's wealth and assets for the benefit of the individual's heirs. It is similar to a will, but trusts offer certain tax and probate advantages that wills do not. The person who makes the trust is called the "grantor," and if he names a different person to manage the trust (a "trustee"), then the trust is called a "grantor trust."
Grantor trusts can be either revocable or irrevocable. Like the words themselves imply, a revocable trust can be modified and/or voided by the grantor; an irrevocable trust can not.
Grantor, Trustee and Beneficiary
-
Three parties are named in grantor trusts. The grantor is the person with the wealth who sets up the trust in the first place. The trustee is the person named by the grantor to oversee and administrate the trust. In accepting the position, the trustee assumes specific fiduciary responsibilities and legal liabilities. Trustees can be paid for their services. Lastly, grantor trusts name one or more beneficiary. Beneficiaries assume the assets of the trust upon the grantor's death.
-
Fiduciary Requirements
-
Fiduciaries are people who have the responsibility to manage the assets of others. Powers of Attorney are fiduciaries, as are executors of estates and trustees of grantor trusts. Trustees must act in the trust's best interest, rather than their own. This means that they must act in a manner that protects the trust's assets while at the same time enacting the wishes of the grantor. They must be honest and fully disclose to the grantor any information that might have a bearing on the trust. Trustees are also required to always act in good faith, which means that they must not knowingly misrepresent or conceal anything related to the trust. They must also ensure that every action the trust takes (e.g., investing) is legal.
Legal Liability
-
Fiduciaries also assume legal liabilities. They breech their responsibilities if they make unauthorized transactions of funds, or use the funds for a purpose not defined in the trust. They may not transact any business that is illegal or prohibited, or commit fraudulent acts like forgery. Some fiduciaries, especially those who are professional trustees, carry fiduciary liability insurance to protect themselves against legal suits from the grantor, beneficiary or other party.
-
