What is a trustee? What do they do?

A trustee acts as a custodian for a trust. Almost anyone can be a trustee, as long as they accept the responsibilities that come with the position.

Derek Silva

Derek Silva

Published June 7, 2019

KEY TAKEAWAYS

  • The creator of a trust can name anyone as a trustee, except a minor

  • A trustee acts as the custodian for a trust, and does so according to details of the trust document

A trust is a legal entity in which you can place assets, like property or money, so that your beneficiaries can access them after certain conditions are met (such as your death).

A trust works kind of like an account that you put assets into, but then the trust itself is the legal owner of the assets. You create one with a trust agreement document, which lays out what assets are in the trust, who manages the trust, how they should manage it, and who receives the assets when some preset conditions are met.

The grantor, or creator of the trust, adds assets to the trust. Then someone, known as the trustee, acts as custodian. The trustee is not the owner of the assets. They are simply managing the trust.

When the time comes to pass on assets to the beneficiaries, the trustee oversees that. In some cases, a trustee may have to manage the trust for years until a beneficiary reaches legal age (usually 18).

There are multiple types of trusts, including revocable and irrevocable living trusts. Revocable living trusts are a popular alternative to wills because when you die, the assets usually don’t have to go through probate court.

In this article:

Who can be a trustee?

A trustee, the person who manages the money and assets in a trust, can be almost anyone. A grantor appoints a trustee when they create the trust. In many cases, the person who creates a revocable living trust, also known as the grantor or settlor, serves as trustee.

Multiple people can also serve as co-trustees. Married couples who create a trust often serve as co-trustees. When one of the partners passes away, the other becomes the sole trustee.

If you’re managing your own trust, you should also name a successor trustee. This is someone who can take over trustee duties when you pass away. It’s best to name multiple successor trustees so that if one declines the responsibility or just cannot perform the duties, then you will have a backup.

It’s also possible for beneficiaries to serve as trustees. This is common in the case where someone creates a trust, serves as their own trustee, and then names a beneficiary as a successor trustee to take over after their death.

Another option is to name a lawyer or firm as a trustee. This could be a good option if your estate and financial situation are complex. And since nearly anyone can serve as a trustee, the attorney who drafted your trust could be a good option.

Trustees have a fiduciary duty

Trustees also have a fiduciary duty to act in the best interests in the trust. For example, trustees cannot make investment decisions that benefit themselves above the trust. They also cannot favor certain beneficiaries or give more to one beneficiary over another unless they’ve been instructed to do so.

This fiduciary duty is good to keep in mind if you’re looking for an attorney or third party to manage your trust. Anyone you choose has a legal obligation to put the trust’s interests above their own.

Information a trustee needs

In order to properly manage a trust, a grantor should talk with their trustees to explain what’s in the trust and any specific instructions for its management.

A trustee should have access to any necessary financial documents, like life insurance policies and retirement account details.

In particular, trustees need access to the trust document. This is a legal document detailing a trust’s location, grantor, trustee, and beneficiaries. It will also include any specific instructions that the trustee must follow.

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The responsibilities of a trustee

Trustees have many responsibilities ranging from documenting the day-to-day finances to distributing money and assets to beneficiaries.

Documenting a trust’s finances

A primary responsibility of a trustee is to manage a trust’s finances. That includes keeping detailed records of all income, expenses, and other transactions for a trust. If a trust earns income, the trustee has to file income tax returns. When the assets of a trust include real estate, trustees need to ensure the trust pays property taxes.

In some cases, a trust is designated to pay for particular costs, such as the funeral expenses for a grantor.

If a trustee ever needs the help of a professional, like a tax accountant, to complete their duties, they should keep records of all bills and fees.

Handling investments

It is a trustee’s duty to manage any investments in a way that aligns with the objectives of the grantor and the trust. Ideally a trustee has spoken with the grantor to discuss investment objectives, but the trust document should also lay out any specific requirements. In lieu of specific instructions, the trustee should maintain a diverse portfolio to help minimize risk.

Again, the trustee should maintain financial records for all investments. That includes trades and management fees. If the trustee works with a financial advisor or financial planner for management help, they should track the costs of all services.

Distributing assets to beneficiaries

It is the responsibility of trustees to oversee the distribution of money and assets to beneficiaries.

Each trust will have certain conditions that, when met, trigger the distribution of some or all assets to beneficiaries. In many cases this happens when the grantor dies. However, beneficiaires may receive assets before the grantor’s death.

In some cases, the beneficiaries won’t receive assets for years, such as when a beneficiary is a minor. In that case, the trustee must continue to act as a custodian of the trust.

As for how the trustee must handle their responsibilities, they have to act according to the wishes of the grantor and the instructions in the trust document. If these conflict, trustees should follow the trust document.

Can a trustee get help?

Trustees have the right to get the help they need to properly manage a trust. This could include working with a tax accountant, financial planner, or lawyer. The lawyer or firm that created the trust document is a great resource if the trustee has questions about how to manage the trust. Professional help can be especially useful if a trustee has to act as a custodian for years until a beneficiary reaches the legal age to receive trust funds.

If a trustee does get professional help, they are still responsible for ensuring trust is managed according to the trust document.

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