What Is a Trustee?

Types of Trustees

A trustee typically manages the assets of a trust. However, other common types of trustees include:

  • Successor trustees: These trustees step manage revocable living trusts when the person who created the trust dies or becomes incapacitated.
  • Investment trustees: These trustees manage the day-to-day operations of an investment portfolio or account.
  • Corporate trustees: These trustees work at financial institutions or investment firms that build and manage trusts on behalf of their clients.
  • Bankruptcy trustees: These trustees are appointed by the U.S. Bankruptcy Court to administer the assets of a person or business that has declared bankruptcy.
  • Charitable trustees: These trustees manage assets held in a charitable trust and distribute them as directed by the trust creator.

What Does a Trustee Do?

Trustees have a fiduciary duty to act in the best interests of the trust’s beneficiaries. Their full responsibilities are laid out in writing and limited in scope within either a trust agreement or will.

Typically, a trustee’s responsibilities include developing investment strategies, overseeing investments, paying the trust’s bills, insuring any property it owns, and paying the federal income tax on behalf of the trust.

Trustee Duties & Responsibilities

Trustees have a general fiduciary duty to act in the best interests of the trust’s beneficiaries. Their full responsibilities are laid out in the document that created the trust, which could be either a trust agreement or a will. In most cases, trustees control distributions from the trust and how those assets are invested. Trustees are also responsible for developing investment strategies, overseeing investments, paying the trust’s bills, inclusive of any income tax due on behalf of the trust, and insuring any property it owns.

What a Trustee Cannot Do

The trustee must act in the beneficiaries’ best interests at all times. Therefore, trustees are prohibited from using their power to gain an advantage at the expense of beneficiaries and avoid any activity that could lead to self-dealing, conflicts with the trust’s interests, or conflicts with their fiduciary obligations. A trustee must also remain impartial. Thus, a trustee cannot favor one beneficiary over another. Additionally, it is against the law for trustees to delegate tasks they are reasonably capable of performing. A trustee also cannot delegate authority to someone else. Note that this obligation does not preclude a trustee from being assisted by an Orange County trust lawyer when appropriate. Hence, if you have been appointed a trustee, you have several tasks to complete, and there is little margin for error. You are always best off consulting a legal professional experienced in setting up trusts for a full-proof execution of your trustee duties.

Choosing a Trustee

Choosing a trustee might be challenging because sometimes it’s tough to know which person or entity you can trust to administer your assets the way you want them to. Some options to consider are:

  • A wealth management/trust company: A wealth management and trust company has professionals (attorneys and accountants, etc.) that will administer a trust and any fees they may charge, would get paid from the trust. This may be a costly option, but you’ll be able to rest knowing your assets are in the hands of professionals who will act in the trust’s best interests.
  • Friends or family: A trusted friend or family member could be considered to administer your trust. However, they must be willing to be subjected to the possible drama and resentment that can arise when a family member is in charge of large sums of money. Additionally, the person appointed should be able to do the task as long as the trust exists. You’ll need to consider an alternate trustee in case something happens to the primary trustee. This option eliminates the courts from appointing someone on your behalf rather than you choosing someone you feel is a better fit for the task.
  • A trust attorney: A trust attorney can most certainly be a good choice. They will be familiar with trust laws in your state and be a reliable trustee. However, consider that an attorney may not be an investment professional.

Trustee FAQs

Some questions you might have about about trustees are:

Can a Trustee Be Personally Liable?

Yes! Generally speaking, a trustee can be held personally liable. He or she must make all decisions in the best interest of the Trust and on behalf of the beneficiaries’ benefits. One way a trustee can protect themselves is by keeping accurate, detailed records of the financial transactions and distributions. Another thing to keep in mind is the importance of the trustee having a solid comprehension of the trust’s instructions and powers afforded to the trustee to avoid any potential for conflict.

What is a Successor Trustee?

A Successor Trustee is someone who is named second in line to serve as trustee. Typically, the creator of the trust is the trustee until they become incapacitated or pass away. At that time, the Successor Trustee steps in. If the Successor Trustee is either unable or unwilling to serve the role required, an alternate trustee is named (this is why it is good practice to name an alternate trustee when creating a trust) just in case anything happens to the originally-named person.

How Long Does a Trustee Have to Settle a Trust?

Provided they are acting in a timely manner and as directed by the trust, there is no deadline and a trustee can have as long as needed to settle a trust. Most trusts tend to take between 12-18 months to fully settle and distribute all assets as it generally takes at least six months to settle a trust. It greatly depends on how complicated the trust is and what provisions are required. For example, trusts created for the benefit of minor children may be active until the child or children are of a certain age.

Do Trustees Get Paid?

Most trustees are entitled to compensation for managing the trust and distributing its assets. Some state laws and many trust documents specifically provide for payments to trustees. However, trustees typically don’t spend more than a few hours a year on their duties and many people do in fact volunteer as trustees for estates (given they are close family or friends). Nonetheless, trustees are usually compensated based on an hourly fee or a percentage of the trust assets being managed. Professional trustee companies will often charge a fee of between 1% and 1.5% of the assets they are managing each year.

What is the Difference Between Beneficiary and Trustee?

Trusts are created to benefit someone (a beneficiary). Trustees are responsible for the trust and its assets. Thus, the difference between a beneficiary and a trustee is that a beneficiary benefits from the trust, and a trustee is in charge of it.

Trustee vs. Executor

The trustee and executor appointments have to do with whether you are working with a will or a trust. A trustee will administer a trust by distributing or managing the assets as the trust directs. An executor, on the other hand, oversees and manages an estate by distributing a deceased person’s assets as directed by a will.

Need Help Fulfilling Your Role as a Trustee? Contact Evolution Tax and Legal

If you are considering selecting a trustee or you are thinking about serving as a trustee for someone else, it is often a good idea to meet with an attorney to either go over the different options as mentioned above or make certain you aren’t taking on more responsibility than you’d planned. Evolution Tax & Legal can help with both and more. Call us today to schedule an appointment at no cost to you!

September 19, 2022

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