Paying Bills as a Trustee

 

As a trustee, you’ve taken on many important tasks. You can handle each one effectively if you make informed choices and apply good judgment.

We’re tackling something that many people struggle with when they become trustees: what bills to pay when responsible for managing someone else’s money. 

There are three important things to think about when paying bills as a trustee:

  1. What bills that all trustees typically pay.
  2. Using the trust bank account to pay those bills.
  3. Paying CPAs and attorneys to pay bills

What bills that all trustees typically pay

As a trustee, you can expect to pay any and all of these bills associated with the trust assets:

  • Final Expenses
  • Final Medical Bills
  • Funeral Expenses
  • Utilities on real property
  • Outstanding credit card bills
  • Mortgage payments on real property
  • Income taxes
  • Estate Tax
  • Final Income Tax

During the trust administration period, once that person who set up the trust passes away, their Social Security number stops. You don’t want to use your Social Security number as the trustee because you don’t want taxable income or expenses to hit your return. You want to have a separate tax I.D. number just for the trust.

This is called a Fiduciary Tax Return, and it’s an IRS Form 1041 that’s prepared and filed in April of the year following when you’re doing trust administration.

Use a Trust Checking Account to pay Trust bills

Never use a personal checking account to pay trust bills, as trustees have a duty not to commingle trust funds with their personal funds. Keeping these things separate ensures you are accountable to beneficiaries and can be a good fiduciary of these assets.

Also, as a trustee, you have a duty to account for beneficiaries unless they waive it – if you have a friendly group of family beneficiaries.

As a trustee, we recommend paying bills with a check rather than an ATM card. That way, you can keep a close eye on spending and protect the trust from misuse. We do not encourage people to use credit cards.

Early in the process, inquire if your bank is legally established to provide you with a trust checking account. Not all banks provide trust checking services. If your bank does not provide trust checking accounts, you will need to find a bank that does. Make sure to inquire about minimum opening deposits, minimum balance requirements, potential fees, and any documents needed to open such an account.

Paying CPAs and Attorneys for Tax Returns

We recommend you use a CPA or attorney with experience in trusts and estates. Not all of them are experienced, but most CPAs can complete a 1041 trust income tax return and many of the other forms you will need.

For smaller trusts, you can generally plan on CPAs charging somewhere between $150-$250 an hour for their work, and it usually works out to somewhere between $2500-$3500 in preparation of returns, advice, counsel, and explanation on tax consequences of sales and generally helping with trusts administration. For larger trusts, with more assets like a family farm or farm equipment, land, and leasing, it’s going to be more.

Attorneys don’t usually prepare trust income tax returns. Attorneys advise, coach, and educate you about how trust administration works and protects you from disputes from the beneficiaries. Attorney’s help you comply with the law regarding notices, and we help you sell assets and advise you on the timing of those things. You want attorneys that specialize in trusts and estates.

At Lawvex, that’s our specialty. We create more than one hundred estate plans every year and can guide you through a simple and understandable process that makes stewardship for your family easy and accessible. Our estate planning services are based on your needs and the complexity of your choices.

We hope this overview of the kinds of bills a trustee must pay has helped you.

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