Serving as a Trustee of an Inherited Trust

Serving as a trustee can feel overwhelming—especially during a period of loss. Under Georgia law, a trustee is a fiduciary with legal responsibilities to manage, protect, and distribute trust assets in accordance with the trust’s terms and purposes.

This guide provides a general overview of common trustee responsibilities in Georgia trust administration. It is intended to help trustees understand the process and identify when professional guidance may be helpful.

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1. Confirm the Trust Terms and Your Role as Trustee

The trust terms are contained in the will or trust agreement signed by the Grantor or Settlor (usually a parent).

Financial institutions typically require:

• A copy of the trust document (or relevant excerpts), and

• Proof that you are the named trustee.

Trustees usually sign a short Acceptance of Trustee, confirming their willingness to serve and their obligation to administer the trust in good faith and according to its terms.

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2. Obtain a Tax Identification Number (EIN) for the Irrevocable Trust

An inherited trust is created at the parent’s death and is often irrevocable. At that point, the trust may be treated as a separate legal entity for tax purposes.

• If the trust is required to file tax returns or hold assets in its own name, an Employer Identification Number (EIN) from the IRS will be required.

• Trustees should consult with their CPA or tax professional to determine whether an EIN is required and to ensure it is obtained and used properly.

An inherited irrevocable trust must use its own EIN, not the beneficiary’s Social Security number.

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3. Open Properly Titled Trust Accounts

Trust assets must be held in accounts titled in the name of the trust.

Testamentary Trusts (Created Under a Will)

A testamentary trust arises at death but cannot be funded until the will is admitted to probate. Once probate begins, the trustee opens trust accounts using the EIN and proper trust naming conventions.

Trusts Created Under a Revocable Living Trust

These trusts come into existence at death under the trust agreement, allowing trust accounts to be opened immediately.

Important Georgia principle:
A trust is treated as a separate legal entity. Trust assets must never be commingled with personal funds. Failure to maintain this separation can undermine fiduciary duties and asset protection.

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4. Manage and Invest Trust Assets Prudently

Georgia law authorizes trustees to manage trust assets broadly, including buying, selling, reinvesting, and hiring professional advisors.

Trustees must follow the Prudent Investor Rule, exercising reasonable care, skill, and caution in light of:

• The purposes of the trust,

• The needs of the beneficiary, and

• Long-term objectives.

Investments should be reviewed regularly and adjusted as circumstances change.

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5. Make Distributions for Health, Education, Support, and Maintenance (HEMS)

Most inherited trusts permit distributions for:

• Health (medical expenses, insurance),

• Education (tuition, training, related costs),

• Support and maintenance (housing, food, utilities, transportation).

Even when a trustee has discretion, Georgia law requires that distributions be made in good faith, in accordance with the purposes of the trust, and consistent with its terms.

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6. Distribute Income and File Required Tax Returns

Each year, the trustee must decide whether to:

• Distribute income to the beneficiary (often more tax-efficient), or

• Retain income, which may be taxed at higher trust tax rates.

Most trusts must file IRS Form 1041 annually once there is income or reportable activity.
If income is distributed, the trustee must issue a Schedule K-1 to the beneficiary.

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7. Keep Complete and Accurate Records

Trustees should maintain clear records of:

• All trust income and expenses,

• Investment activity,

• Distributions and their purpose,

• Statements, correspondence, and tax filings.

Good record-keeping demonstrates proper administration and supports the trustee’s compliance with Georgia fiduciary duties. Trustees are generally entitled to reasonable compensation and reimbursement of proper expenses, as permitted by the trust and Georgia law.

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8. Protect and Preserve Trust Assets

Trust assets are not owned by the beneficiary and are often protected from:

• Creditors,

• Divorce claims,

• Lawsuits and judgments.

Trustees owe a duty of loyalty to the trust and its beneficiaries and must:

• Avoid commingling trust and personal assets, and

• Avoid self-dealing or conflicts of interest.

Asset protection depends on proper administration and adherence to fiduciary duties.

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9. Transition of Trusteeship

Many trusts provide that an adult trustee serves until the child reaches a specified age.

When the child becomes trustee:

• They sign an Acceptance of Trustee,

• Financial institutions are notified,

• Trustee responsibilities continue under the same fiduciary standards.

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10. Distribute Remaining Assets at the Beneficiary’s Death

When the beneficiary dies, remaining trust assets typically pass to descendants unless the trust provides otherwise.

Many trusts grant a limited power of appointment, allowing the beneficiary to direct how remaining assets are distributed, subject to the trust’s terms.

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Special Note on Retirement Accounts and Trust Planning

Retirement accounts such as IRAs and 401(k)s follow special tax rules.

In many cases:

• The beneficiary must withdraw the account within 10 years,

• Trust-retained withdrawals may be taxed at higher trust tax rates,

• Direct beneficiary withdrawals are taxed at individual income tax rates.

Because beneficiaries already have access to retirement funds, families often place non-retirement assets—such as investments, cash, or real estate—into trust for long-term protection and management.

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Questions About Trust Administration in Georgia?

Trust administration involves legal, tax, and fiduciary considerations that vary from trust to trust. If you are serving as a trustee and have questions about your responsibilities or next steps, professional guidance can help ensure the trust is administered properly and in accordance with Georgia law.