CRTPro Trustee Duties

CRT trustee duties generally fall into three categories of tasks:

• Investment management
• Administration
• Communication

Investment Management
“A trustee shall invest and manage trust assets as a prudent investor would, by considering the purposes, terms, distribution requirements, and other circumstances of the trust. In satisfying this standard, the trustee shall exercise reasonable care, skill and caution.” This language, found in the Uniform Prudent Investor Act, has been adopted by many states and charges trustees with skillfully and cautiously making trust property productive while carefully considering the terms of the trust. It is critical that the investment strategy meet the expectations of all parties in the CRT Triangle. Unless the trustee has considerable experience as an investment manager, it is a good idea to employ one who does, with emphasis on reputable managers having experience investing for CRTs.

"Imagine an income beneficiary...getting nothing because trust income did not qualify as distributable income."

It is expected that diversification is a high priority of the trustee. There are some exceptions to this due to some trusts being comprised of a single asset. Negligent investment strategies can cause a CRT to underperform, and worse, become disqualified as a CRT. Imagine an income beneficiary of a net income CRT, fully expecting a trust payout, and getting nothing because trust income did not qualify as distributable income. A documented investment policy is a very good trustee practice, especially in light of the liability the trustee incurs here.

Administration
CRT administration is a duty of the trustee. Tax compliance includes accurate recordkeeping, IRS filing, and application of trust accounting principles. Very few CRT trustees handle this alone. Trust companies and nonprofit organizations that serve as trustee usually utilize a business/accounting office to run the necessary calculations and fill out the required tax forms. Individual trustees often hire a third party administrator or CPA to handle the administration. Proper CRT administration includes:

• accounting for trust income and payment of trust expenses
• accounting for the allocation of trust earnings to trust principal and income
• calculation of required trust distributions to each beneficiary and the coordination of the distribution, including the liquidation of trust assets as necessary, the preparation of checks as necessary, and the timely delivery of these payouts to trust beneficiaries
• preparation of a trust annual report, required federal trust tax returns and forms, including beneficiaries’ substitute forms K-1, and, as applicable, state trust income tax returns
• safekeeping of all trust accounting records

  "Each new tax act can change CRT tax reporting significantly..."

Even though legal compliance is ultimately the responsibility of the trustee, a good CRT administrator will cast a watchful eye over all aspects of trust operations and will proactively notify the trustee of anything that could possibly disqualify the trust as a CRT, or cause detrimental effects to any of the members of the CRT triangle. Compliance to tax laws is an ever-changing phenomenon in CRT tax reporting. Each new tax act can change CRT tax reporting significantly and since split interest trust reporting is not that high on the IRS food chain, it may not immediately be clear how the changes are supposed to be applied. Most trustees are happy to delegate this responsibility to a qualified individual or organization.

Communication
CRT trustees need to have regular communication with trustmakers and trust income beneficiaries. Communication with any remainder beneficiaries may not be possible depending on the trust document and the wishes of the trustmakers. Communication with beneficiaries is typically the category that trustees are most effective in. Trust companies and non-profits usually build long standing relationships with trustmakers well before the trust was ever created. They contact their clients regularly and are very good at building a strong connection between their organization and the trustmakers and beneficiaries. This keeps all members of the CRT triangle better informed on trust operations and procedures. So what constitutes regular communication? At the very least, the trustee must provide an annual accounting of the trust to the non-charitable beneficiary. Ideally, it is a combination of written and verbal communications that are made throughout the year in order to keep trust operations running smooth. Larger, more complex trusts may need more correspondence than smaller simpler trusts.

"...the trustee must provide an annual accounting of the trust to the non-charitable beneficiary."

Trusts that are selling hard to value assets will need a great deal more trustee interaction in that year than in other years. It is good practice for trustees to keep good records and mail hard copy correspondence to confirm any trust procedure changes or verbal requests that result in changes to trust operations. When performed regularly, written and verbal communications may keep small problems from developing into large problems.

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