Taxation & Estate Planning

Receipts and Distributions, part 2

By Joel A. Schoenmeyer

On Tuesday I blogged about the receipt-distribution dance. One natural question might be, "why do I need to get receipts at all, if there's no court supervision of trust administration?" I think the answer can be boiled down to three letters: CYA.

Just because there is no court supervision NOW doesn't mean that there won't be court supervision (or similar scrutiny) in the future, either because a beneficiary files suit or because of IRS action. The key to effective trust administration is keeping good records, which means documenting everything you do as trustee. This is primarily done via an accounting, but it's also done via a paper file that can tell disgruntled or confused beneficiaries (or even professionals) the story of the trust. Someone stops acting as trustee? Have them sign a document to that effect. Someone steps in as trustee or co-trustee? Have them sign a document to that effect. The trustee decides to make a discretionary distribution? Have them sign a document to that effect. You get the idea.

And, lest I be accused of self-interest, you should note that the documents I reference above can be prepared very easily (most of them require maybe 1/2 hour of attorney time at the most). It's obviously much cheaper to keep good records from the get-go than it is to reassemble these records when a beneficiary is threatening to drag you to court.

Full post as published by Death and Taxes Blog on November 27, 2008 (boomark / email).