Understanding the Role and Responsibilities of a Trustee

Trusts are a vital component of estate planning for many families, providing a structured way to manage and distribute assets across generations. At the heart of every trust is the trustee, a person or organization responsible for managing the trust’s assets on behalf of its beneficiaries. Whether you’re considering appointing a trustee or being asked to serve as one, it’s crucial to understand the responsibilities and skills required for this role.

What Is a Trustee?

A trustee is an individual or entity that manages the assets and property within a trust fund for the benefit of the trust’s beneficiaries. There are three essential parties in a trust:

• Grantor: The person who establishes the trust and transfers assets into it.
• Beneficiaries: The individuals or groups who benefit from the trust.
• Trustee: The person or organization that manages the trust’s assets on behalf of the beneficiaries.

In many cases, a successor trustee is named to take over when the current trustee can no longer serve due to death, incapacitation, or other reasons. For example, Bob and Ella might establish a revocable living trust for their family. When Bob passes away, Ella becomes the successor trustee, managing the trust until her death. At that point, their oldest daughter steps in to distribute the trust’s assets to the remaining beneficiaries, after which the trust is dissolved.

Responsibilities of a Trustee

The responsibilities of a trustee can vary depending on the type of trust and the terms outlined in the trust agreement. However, some core responsibilities include:

Acting as a Fiduciary

Trustees have a legal obligation to act in the best financial interests of the trust’s beneficiaries. This fiduciary duty requires trustees to oversee the sound management of funds, even when working with outside advisors.

Managing Money Carefully

Trustees must protect and preserve the trust’s assets, ensuring they are invested safely to maintain their value. Failure to do so can result in personal liability for the trustee.

Keeping Trust Funds Separate

Trustees must not commingle trust funds with their personal funds, maintaining clear and separate accounts.

Maintaining Good Records

Accurate and complete records of income, expenses, investment returns, tax filings, profits, and losses must be maintained at all times.

Filing and Paying Taxes

Trustees are responsible for filing and paying taxes on behalf of the trust, ensuring compliance with all tax regulations.

Managing Assets and Paying Bills

Trustees often oversee third-party advisors, manage bank accounts, collect rent on trust-owned property, pay bills, and handle other financial operations of the trust.

Distributing Assets

Trustees oversee the periodic and final distribution of assets as instructed in the trust documents, ensuring beneficiaries receive their due shares.

Communicating with Beneficiaries

Trustees keep beneficiaries informed about any changes or activities within the trust, answering questions and providing updates as needed. In some cases, successor trustees may also notify beneficiaries of the grantor’s death and work with the executor on final expenses.

How to Choose a Trustee

When creating a revocable living trust, you may choose to serve as the trustee yourself. If you need to name a different trustee or successor trustees, you can generally choose anyone 18 or older who you believe is suitable. Here are some common choices to consider:

Your Spouse or Partner

Your spouse or partner can serve as the primary trustee or act as your co-trustee on a family trust. You and your spouse may each act as the first successor trustee if the other passes away.

Your Adult Child or Children

One or more of your adult children may act as trustees or successor trustees, managing the trust on behalf of the family.

Another Family Member or Close Friend

You might ask a sibling or close friend to serve as a successor trustee, especially if you become incapacitated and need to use trust funds for your care and support.

A Trusted Third Party

You can appoint a third party, such as an attorney, trust company, or the trust department at a bank or credit union, to act as trustee. Third-party trustees typically charge fees for their services and may require a minimum level of assets in the trust.

Co-Trustees

Trustees don’t have to serve alone. You can appoint co-trustees to manage your trust or carry out your directives. For example, you could have all your children act together, provided they can collaborate effectively. Alternatively, you could name both a family member and a trust company as co-trustees.

If you can’t decide on a trustee, a court may appoint one if you die or are unable to manage your own trust.

What to Consider Before Becoming a Trustee

Before agreeing to serve as a trustee, consider the commitment you’re making and whether you have the skills and bandwidth to do a good job. Here are four basic considerations to think through before saying yes:

Understand Your Responsibilities

Read through the trust documents to understand your responsibilities and what help (if any) you can expect from co-trustees or professional advisors. If possible, talk with the grantor(s) in advance about their expectations and wishes.

Consider Your Skills

Managing a trust may require high-level financial skills or at least enough financial knowledge to provide effective oversight. You also need administrative skills to transfer ownership of assets, keep careful records, file taxes, and communicate with beneficiaries.

Be Honest About Time

Administering a trust requires a significant investment of time. If you don’t think you have the time and focus, you may want to decline the role.

Assess Your Comfort Level

Acting as a trustee may require you to deal with difficult situations, such as young children needing long-term financial support, beneficiaries struggling with medical or addiction issues, or siblings disagreeing on distribution terms. As a trustee, you’ll need to be objective and communicate effectively, even when the news you share may be unpopular.

The Bottom Line

If you need to appoint a trustee (or multiple trustees), look for family members, friends, or trusted advisors who can carry out the terms of your trust and consistently act in the best interests of your beneficiaries. If someone has asked you to serve as a trustee, think carefully about the responsibility and whether you’re up for the challenge. Trustees play a pivotal role; finding the right trustee for the job can help ensure your trust is executed according to plan.

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