Terms and Definitions Every Trustee Should Know

The language used in the trust and by those involved with you in the administration of the trust may seem like a foreign language. What is everyone talking about? What do the terms and acronyms mean? In order to be an effective trustee it is important that you understand exactly what everyone is talking about.

10 Common Terms Defined

Some of the terms that you may hear during your work as trustee include:

  • A-B trust. This is an arrangement where two trusts are created. The A trust, which is sometimes referred to as the Marital Trust or QTIP Trust, is created for the benefit of the surviving spouse. The B trust, which is sometimes referred to as the Credit Shelter Trust or Family Trust, is created for the benefit of other family members.
  • Certificate of trust. This document describes how the trust will be funded.
  • Fiduciary duty. A type of responsibility held by trustees, and others, to act for the benefit of the beneficiaries and not himself or herself.
  • Funding a trust. This occurs when assets are placed in the trust.
  • GST tax. The GST tax, or generation skipping tax, is imposed when property over the exemption amount is transferred to someone two or more generations removed from the donor, such as the donor’s grandchildren.
  • Issue. Direct descendants such as children and grandchildren. Other relatives such as a spouse, parents, and siblings are not considered to be issue.
  • Power of appointment. This power is given to an individual who is typically the beneficiary of the trust. It allows the individual to appoint, or give, the trust property to other people when that individual’s interest in the trust is terminated or in other specific circumstances described in the trust.
  • Prudent Investor Act. A law that describes how a fiduciary, such as a trustee, must invest assets. A fiduciary is expected to invest property with the same care that a prudent, honest, intelligent, and diligent person would under the same circumstances.
  • Self-dealing. This occurs when someone, such as a trustee, personally benefits from a financial transaction made on behalf of the trust. It is something that should generally be avoided.
  • Spendthrift provision. This provision of a trust restricts how a beneficiary can use or transfer his or her interest in the trust assets.

Of course, other terms or acronyms may come up during the administration of the trust. If they do then you should not be afraid to ask questions. Simply search our website or start a live chat with us today to get the information that you need to do your job as trustee.

 

James F. Roberts
Founder and owner of the Law Office of James F. Roberts and Associates, a premiere estate planning law firm