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Purpose of a Trust

Below is a summary of key findings on the differences between trust services and trust administration. Please note that the term “administrative trust” refers to a tax return approach of a trust and might have been mistaken for trust administration in the original question. For the purpose of clarity, this report includes information on both trust administration and administrative trust in the findings. Also note that for the purpose of this research and consistency with the content of the questions asked, the findings are limited to personal trusts, not trusts for organizations.

Trust Services

  • Trust services are a wide range of services typically provided by trust companies. A trust company, for instance, may play a number of roles: as a sole trustee, co-trustee or successor trustee for revocable, irrevocable, charitable and special needs trusts; and/or as a guardian and conservator to manage assets for minors or incapacitated adults under court direction.
  • Trust services may include portfolio creation and prudent investment management, cash management and bill payment, distributions to the beneficiaries, consolidated asset reporting and record keeping, and annual trust tax return preparation.
  • In other words, trust services may include but are not limited to trust administration, professional investment management, bill paying, re-registration of assets, safekeeping of assets, periodic statements, collection of income, distributions to the beneficiaries, insurance services, tax preparation, payment of estimated taxes, etc.

Administrative Trust

  • Administrative trust is a tax return approach that “treats the trust estate as a separate taxpayer between the date of death and the date that the separate trusts are funded. Under this approach a separate taxpayer identification number is obtained and a 1041 fiduciary tax return filed for the administrative trust.”
  • This is an alternative method to the pass through method, under which all trust income is taxed to the sub-trusts or the beneficiaries beginning with the date of death of the settlor (trustor).

Trust Administration

  • Trust administration, on the other hand, refers to the management of the trust assets according to the terms of the trust for the benefit of the beneficiaries after the death of the trustor (settlor). The administration power belongs to the trustee.
  • Trust administration consists of a mandatory notice to all of the beneficiaries and the trustor’s hiers, assignment of the successor trustee, property transfers, settlement of any outstanding debts and liabilities of the deceased trustor (decedent), filing of tax return, and distribution of the remaining trust assets.
  • Simply put, trust administration is a process of transferring the trust assets from the trustor who passed away (after their death, the trustor or settlor is also known as “decedent”) to the beneficiaries identified by the living trust.

Differences Between Trust Services and Trust Administration

As mentioned previously, trust services consist of a wide range of services, one of which is trust administration. In other words, trust administration is one of the many services provided by a trust company. Trust administration is a process of transferring the trust assets from the trustor upon their death to the identified beneficiaries. Trust services, on the other hand, may also include trust administration but also consist of other services, ranging from portfolio management to safekeeping of the trust assets and insurance services.

TDM

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