How to Create a Filing System for a Trust
Organization is the key, and no more so than when you’re a trustee. The grantor has relied on you to handle the trust’s assets competently. When you’re organized, you know where the trust’s important documents and records are, which helps you to properly and efficiently administer the trust.
Organizational lapses can mean extra time spent searching for a crucial piece of correspondence or, more important, failure to make a required distribution or file and pay the trust’s taxes. Start off your administration in as organized a fashion as you possibly can, and as with most things in life, you’ll find that almost everything you do will be easier and take less time.
Organize the trust the right way
Beginning on the right foot when administering a trust is important. So where do you start? The day you discover you’re a trustee is the day you should begin organizing the trust’s administration. What do you do to begin? Even though much administration is done online these days, you may still want to head to your local office supply or stationery store for the following items:
Paper supplies: Pick up manila files, file folders, labels, special accounting pads (if you’re not comfortable working with a computer spreadsheet), legal pads (or whatever you prefer to make notes on), and anything else you think may be useful to you.
Various ink stamps (and ink if necessary): If you’re going to be collecting dividend and/or interest checks, you may want to purchase a For Deposit Only stamp for the back of your checks, or a date stamp to put on all trust correspondence you receive.
A file cabinet: You really want one that locks and is reasonably fire resistant.
A computer, printer, and Internet connection (if you don’t already have them available to you): If the trust is large enough, complex enough, and will continue long enough to warrant the cost, these investments will be invaluable.
Most of the work you need to do for any trust can be done on a computer, and having one can save you a great deal of time and money over the course of the trust’s administration, but it’s important to maintain current backups of everything, preferably both on paper and on computer media.
That means photocopying documents and putting them in multiple places, having offsite Internet-based backup, and even backing up onto an external drive that you then lock in a fireproof safety deposit box. Don’t assume that, just because everyone else says they’re keeping backups, you can re-create your records if they’re lost.
With your supplies in hand, create some file folders. Here are some you positively, definitely want to have, whether you have a manual or electronic filing system. Keep in mind that some of these files can be destroyed at a later date; others you may want to have bronzed. The following list shows you which files you want to keep permanently:
You can destroy these files after you’re done with them. Remember, though, that the concept of temporary is relative. In many cases, you’re not going to want to toss these files onto the bonfire for many years:
Bank statements and canceled checks, filed by date: You can destroy them after you’ve prepared the annual accounts and after beneficiaries have assented to those accounts. If this is a probate trust, hang onto them until the probate account has been allowed.
Brokerage statements and stock trade confirmations, filed by date: Hang onto them as long as you keep the bank statements and canceled checks.
Income tax returns, either filed sequentially by date in one folder or in separate folders for each year’s returns: Keep copies of all income tax returns for at least seven years after you file them.
Correspondence, filed by date: Depending on the content of the letters, you may want to hold onto old correspondence until the trust terminates and all accounts have been assented to. You can place the really old correspondence into storage, though.
E-mails, plus memos and notes regarding phone conversations and meetings, filed by date: Hold onto them as long as you keep your correspondence files. You’d be surprised how often you need to reference historical information.
Billing: Yes, as trustee you bill the trust for your fees, unless you choose to forgo a trustee fee because the trust is for a family member or for some other reason. You want to keep a record of what you bill and what you base your fee on. You can destroy them together with the bank and brokerage statements.
Miscellaneous: This file is where you put anything that you think is important but doesn’t really fit into any of the other categories. If you’re placing old correspondence, e-mails, and memos into storage, you probably should put these old miscellaneous files there as well. After the trust terminates, you can destroy them.
Of course, every trust is different, and you may find that your miscellaneous file is the biggest one in the drawer. If that’s the case, see whether you can group that information into some additional file categories and shrink that down to a manageable size. The more finely you’re able to slice down the information you’re keeping, the more easily you can find exactly what you’re looking for when necessary.
Keep the trust instrument handy
You may have already read the trust instrument and are fairly certain you know what’s contained in it. You can’t read, and comprehend, everything in a trust document sequentially. By the time you actually reach the signature pages at the end, you won’t even remember the name of the trust, let alone recall what Article VII or Paragraph 3(B)(ii)(c) says.