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Understanding the Trustee

Understanding the Trustee

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A trustee, also known as the fiduciary, is someone who is responsible for the assets of a trust and the ultimate disposition of said assets. The trustee is generally designated by the grantor (creator) of a trust, or by the decedent through his or her last will and testament. The trustee takes title to the assets of a trust and is entrusted with the protection or conservation of these assets for the beneficiary (or beneficiaries) of the trust.

One of the responsibilities of a trustee is to file annual fiduciary income tax returns with the Internal Revenue Service and the applicable states. The trustee may be personally liable for any tax delinquencies in certain circumstances. For federal taxes, the trustee files Form 1041 for a decedent’s estate if the taxable income is more than $600, for a complex trust if the taxable income is more than $100, or for a simple trust if the taxable income is more than $300. There can be more than one trustee. If there is, then Form 1041 can be filed by any of these trustees. The trustee must file Form 1041 by the 15th day of the fourth month following the close of the trust’s tax year. An automatic extension of time to file can be requested by the trustee using Form 7004, with an appropriate estimate of the amount of tax expected to be due. For New York trusts, the trustee would file Form IT-205; for New Jersey, the trustee would file Form NJ-1041.

There can be disadvantages to being a trustee. If a beneficiary, an individual designated to receive current income, or a remainderman, an individual entitled to the corpus of the trust, perceives an inequity in the handling of the trust’s assets, they could sue the trustee for breach of fiduciary responsibility. There have been cases where the courts have sided with the trustee when the trustee has shown that they have acted in good faith and in a manner consistent with how a prudent investor would act.

The trustee is entitled to commissions, as long as they are not specifically disallowed per the will or trust agreement. In New York, commissions are computed as follows, based on the fair market value of the assets at a specific time, usually at the end of the trust’s year.

(a) $10.50 per $1,000 or major fraction thereof on the first $400,000 of principal.
(b) $4.50 per $1,000 or major fraction thereof on the next $600,000 of principal.
(c) $3.00 per $1,000 or fraction thereof on all additional principal.

The court must allow the trustee his or her reasonable and necessary expenses actually paid by him or her. Additionally, he or she must be allowed for his or her services as a trustee a commission from principal for paying out all sums of money constituting principal at a rate of one percent.

Anthony Rappa, CPA, MBA Anthony Rappa, CPA, MBA


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To ensure compliance with U.S. Treasury rules, unless expressly stated otherwise, any U.S. tax advice contained in this communication is not intended or written to be used, and cannot be used, by the recipient for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code.

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