Trust Administration

Being named as a trustee is a responsibility that many people accept without fully understanding what it entails. Whether you have been asked to serve as trustee of a family member’s trust, or you have inherited the role after a loved one’s passing, the duties are real, the obligations are legal, and the consequences of mistakes can be personal.

Trust administration is fundamentally different from probate. While probate is supervised by a court, most trust administration happens privately — without a judge looking over your shoulder. That independence is one of the great advantages of trusts, but it also means the trustee bears the full weight of decision-making.

I help Oklahoma trustees understand their duties, make sound decisions, and administer trusts properly — protecting both the trust’s beneficiaries and the trustee from unnecessary risk.

Understanding Your Fiduciary Duties

When you accept the role of trustee, you become a fiduciary. This is the highest standard of duty recognized by law. You must act in the best interests of the trust’s beneficiaries — not your own interests, not the interests of any single beneficiary, but the interests of all beneficiaries as a group and as specified in the trust document.

Your core fiduciary duties include:

Duty of loyalty. You must administer the trust solely in the interests of the beneficiaries. Self-dealing — using trust assets for your own benefit — is strictly prohibited, even if the transaction is fair. Conflicts of interest must be disclosed and, in most cases, avoided entirely.

Duty of prudence. You must manage trust assets with the care, skill, and caution that a prudent person would exercise in similar circumstances. This applies to investment decisions, disbursement timing, and every other administrative choice.

Duty of impartiality. When a trust has multiple beneficiaries with competing interests — for example, a current income beneficiary and a remainder beneficiary — you must balance those interests fairly. Favoring one beneficiary over another violates your fiduciary obligations.

Duty to inform and account. You must keep beneficiaries reasonably informed about the trust’s administration and provide accountings when requested or required by the trust terms. Transparency is not optional — it is a legal requirement.

Duty to administer according to the trust terms. You must follow the instructions in the trust document. You generally do not have the discretion to change the terms, even if you believe a different approach would be better.

Trust Asset Management

One of the trustee’s primary responsibilities is managing trust assets — preserving them, investing them prudently, and making them available for distribution when required by the trust terms.

Securing assets. Your first task as trustee is to identify, locate, and secure all trust assets. This may include real property, bank accounts, investment accounts, business interests, personal property, and life insurance proceeds. You need a complete inventory.

Investment duties. Oklahoma follows the Uniform Prudent Investor Act, which requires trustees to invest trust assets as a prudent investor would — considering the purposes, terms, distribution requirements, and other circumstances of the trust. This means:

• Diversifying investments unless there is a specific reason not to
• Considering both current income needs and long-term growth
• Avoiding speculative or unduly risky investments
• Monitoring the portfolio regularly and rebalancing as needed

Record-keeping. Every financial transaction — income, expenses, distributions, investments — must be tracked meticulously. Trust accounting is different from personal accounting, and proper records are essential for tax filings, beneficiary accountings, and protecting yourself against claims.

Preparing Trust Accountings

Trust accountings are formal financial reports that document every transaction within the trust. They are typically provided to beneficiaries on a regular basis — annually, upon request, or at the end of the trust’s administration.

A proper trust accounting includes:

• All assets on hand at the beginning of the accounting period
• All income received (interest, dividends, rent, etc.)
• All expenses paid (management fees, taxes, insurance, repairs, etc.)
• All distributions to beneficiaries
• All gains and losses on investments
• All assets on hand at the end of the accounting period

Errors, omissions, or irregularities in trust accountings are a common source of beneficiary disputes and trustee liability. I prepare accountings that are clear, complete, and defensible — protecting both the beneficiaries’ right to information and the trustee’s record of faithful administration.

Beneficiary Distributions

Distributing assets to beneficiaries is one of the most visible — and most scrutinized — aspects of trust administration. The rules for distribution are defined by the trust document, and following them precisely is essential.

Mandatory distributions. Some trusts require distributions at specific times or under specific conditions — for example, distributing all assets to a beneficiary when they reach age 30. These distributions must be made as directed.

Discretionary distributions. Other trusts give the trustee discretion over the timing, amount, and conditions of distributions. Exercising discretion properly requires documenting your reasoning, considering the trust’s purposes, and treating beneficiaries impartially.

Trust termination distributions. When a trust’s purpose has been fulfilled — all beneficiaries have received their distributions, or the trust term has expired — the trustee must distribute remaining assets, prepare a final accounting, and formally terminate the trust.

Distributions also have tax implications. Beneficiaries who receive distributions may owe income tax on a portion of what they receive, depending on the trust’s income and the nature of the distribution. Proper tax coordination between the trust and its beneficiaries is critical.

Tax Obligations

After the grantor’s death (or when a revocable trust becomes irrevocable for other reasons), the trust typically becomes a separate taxable entity. This creates several tax obligations:

Federal income tax. The trust must file Form 1041, the U.S. Income Tax Return for Estates and Trusts, for each year it earns income. Trust tax rates are compressed — trusts reach the highest marginal tax rate at much lower income levels than individuals — which makes distribution planning and tax-efficient investing particularly important.

State income tax. Oklahoma may also tax trust income, depending on the trust’s connection to the state.

K-1 reporting. When the trust distributes income to beneficiaries, it issues Schedule K-1 forms, and the beneficiaries report that income on their individual returns. The allocation between trust-level taxation and beneficiary-level taxation requires careful planning.

Estimated tax payments. If the trust expects to owe significant taxes, quarterly estimated tax payments may be required to avoid penalties.

Tax compliance is one of the most technical aspects of trust administration, and mistakes can result in penalties, interest, and personal liability for the trustee. I work closely with tax professionals to ensure trust tax obligations are handled correctly.

Trust Termination

Eventually, every trust reaches the end of its purpose. Whether the trust terms specify a termination date, all assets have been distributed, or the trust’s purpose has otherwise been fulfilled, the trustee must take specific steps to close the trust properly.

Final accounting. Prepare and distribute a final accounting to all beneficiaries showing every transaction during the trust’s lifetime.

Final distributions. Distribute all remaining assets according to the trust’s terms.

Tax clearance. File final tax returns and ensure all tax obligations have been satisfied.

Beneficiary releases. Obtain release and receipt documents from beneficiaries acknowledging they have received their distributions and releasing the trustee from further liability.

Formal termination. Depending on the trust’s terms and state law, formal notice of termination may be required.

Proper termination protects the trustee from future claims and gives beneficiaries certainty that the administration is complete. Cutting corners at this stage can leave the trustee exposed to liability years after the trust has been wound up.