Trustees are required to make decisions in the beneficiary's best interests and have a fiduciary duty to them, which means they manage the beneficiaries' assets in their best interests.
A trustee is a person or organization that holds and administers property or assets for the benefit of a third party, such as in the case of bankruptcy, for a charity, or for a trust fund. A trustee has a fiduciary duty to the trust beneficiaries and must make decisions in their best interests.
How a Trustee Works
A trustee is any individual or entity that holds the legal title to an asset or group of assets on behalf of a grantor. This legal title is granted to a trustee by a trust in which they hold title to the assets held in trust for the benefit of others. Beneficiaries are the people or entities who benefit from the trust.
A trust is a legal entity in which the owner of property or assets (also known as the trustor) transfers title to another party (the trustee) for the benefit of a third party. For instance, a trust may be established to provide legal protection for the trustor's assets and ensure that they are distributed appropriately. A trustee is responsible for managing all property and other assets placed in the trust for the benefit of the beneficiaries in a manner consistent with the wishes of the trustor. The duties of a trustee are unique to the terms of the trust agreement and the assets held in the trust. For instance, if a trust owns multiple income-producing rental properties, it is the trustee's responsibility to ensure that these properties are managed, maintained, occupied, and producing income.
Accounts within a trust that consist of other investments, such as stocks, equities in a brokerage account, are also subject to financial management and oversight by the trustees.
Trustees have a fiduciary duty to the beneficiaries of the trust, which requires them to put aside personal interests, beliefs, and biases in order to act in the best interests of the trust.
Responsibilities of a Trustee
Regardless of the specifics of the trust deed, every trustee is bound by a set of general principles and duties. Trustees usually assume the following responsibilities:
Act as a fiduciary
The trustee is responsible for administering the trust in accordance with the grantor's instructions.
Ensure the safety of the assets
Accounting for the trust's funds and assets and identifying the beneficiaries and their respective rights. Trustees also ensure the separation of trust assets from other assets.
Administer the trust
Keeping track of every transaction and distributing assets as necessary
File reports
Reporting to state and federal regulators as required and updating beneficiaries.
Make decisions
As circumstances change, a trustee will be required to make decisions regarding the assets. The decisions must reflect the wishes of the grantor.
Invest
Any invest-able assets must be invested, allocated, or adjusted according to the grantor's instructions.
Communicate with the beneficiaries
Trustees should initiate communication with beneficiaries rather than wait for contact to be made. Checking in is possible via email, telephone, and other methods. Beneficiaries must comprehend the grantor's intentions for the trust, and the trustee must be prepared to answer any questions.
Types of Trustees
A trustee can be a friend or family member, but it may be preferable to find someone with experience. They should comprehend the trust being established and be aware of their responsibilities. For instance, if the trust includes growing assets for future generations of your family, you would want to appoint a person who understands how to grow wealth.
In general, there are three types of trustees:
Individual
The grantor entrusts these friends or family members to manage the fund's assets.
Independent
These are organizations that are not affiliated with a financial institution that specializes in trust fund management. These private businesses employ investment advisors, accountants, and administrators. Numerous entities have names such as ABC Trust Company or XYZ Wealth and Trust.
Institutional
Numerous large
financial institutions employ trust fund professionals who administer, invest,
and manage client trusts.
Trustee vs. Executor
A trustee oversees and administers a trust fund. An executor manages and administers the estate of a deceased person who left assets to heirs by will. A person may appoint one person for each role or one person to perform both roles.
Similar to a trustee, an executor may be a bank, a trust company, or a trusted friend or relative. The executor must distribute assets according to the terms of the deceased's will.
When carrying out their duties, trustees and executors must both comply with the laws of their respective states.
Who to Choose As a Trustee
Choosing a trustee may be one of the most difficult aspects of establishing a trust. It is difficult to determine which individual or organization you can trust to administer your assets as you wish. Consider the following factors when selecting a trustee:
Wealth Management/Trust Company
A wealth management and trust company employs finance experts, attorneys, and accountants to administer a trust according to the letter of the law. Your trust can be set up to pay any fees they may charge, but you can rest easy knowing that your assets are in the hands of an individual who will surely act in the best interests of the trust.
Friends or family
You can choose a trusted friend or family member to administer your trust, but you must ensure they are up to the task. In addition, they will require an iron will to endure the drama and resentment that can arise when a family member is in charge of large sums of money and refuses to give any out on demand. Additionally, this individual must be willing and able to continue the task as long as the trust exists. Finally, you must consider and appoint a backup trustee in the event that the primary trustee becomes incapacitated. This ensures your trust is administered by an individual of your choosing, as opposed to a court-appointed trustee.
Trust Attorney/Lawyer
A trust attorney is another excellent option. They will be familiar with the trust laws in your state and a trustworthy trustee. However, if one of your goals as the grantor is to increase the trust's wealth, a lawyer may not be an investment expert or understand how to manage wealth.
What is the Role of a Trustee?
A trustee administers a trust in accordance with the grantor's instructions. This may involve communicating with beneficiaries, allocating funds to investments, and distributing payments per instructions, among other tasks.
What Does It Mean for a Person to Be a Trustee?
A trustee has been charged with ensuring that a grantor's assets are utilized in accordance with their intentions.
What Are 3 Trustee Obligations?
A trustee must administer the trust in accordance with the grantor's instructions, maintain beneficiary loyalty, and treat beneficiaries impartially.
The Bottom Line
A trustee is someone who has been entrusted with the fiduciary duty of caring for the trust's assets. There are numerous reasons to place assets in a trust, ranging from ensuring income in your later years to accumulating wealth for your family and distributing it as income after your death.
All states have laws governing trusts as well as how they must be administered, so when selecting a trustee, he or she must be knowledgeable about trusts and capable of carrying out the duties. You can find wealth management companies, banks, trust companies, and attorneys who specialize in administering trusts if you do not know a suitable trustee.
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