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You may have heard the term “trustee” before but might be questioning what it means and what a trustee does. Trustees may take care of things such as a person’s estate plan, investments, or charitable giving efforts. A trustee has specific duties based on the type of assets they’re managing, but they all have general duties by law. Let’s take a deeper dive into what this all means and break down a trustee’s responsibilities.
A trustee is a person or firm that can be trusted to manage a person’s money or assets that have been set aside for the benefit of someone else. Trustees are expected to make decisions that are in the best interest of the person who appointed them and have fiduciary (or loyalty) responsibilities, meaning they must ensure everything is executed the way it’s been written out. A trustee can also be appointed to handle financial matters like an individual’s bankruptcy or retirement accounts, but the most common entity handed by a trustee is a trust.
Let’s break it down even further by thinking of it this way: If you have a dog or a cat who you love dearly, you would want to make sure you had someone you trust lined up to take care of your pet if something unexpected happened to you. The same goes for a person’s money and assets after they die, and that’s when a trustee handles their financial matters.
To understand the concept of a trustee even more, here’s some basic terminology that will help pull it all together.
|Trust||A trust is a legal arrangement intended to ensure a person’s assets eventually go to specific beneficiaries.|
|Settlor/Grantor||The individual who transfers assets into a trust for the future use of their beneficiaries is the settlor/grantor.|
|Beneficiary||A beneficiary is the individual or group of individuals who the trust was created for and who will benefit from its assets.|
|Successor Trustee||A successor trustee is second in line to serve as a trustee if the current or first trustee is unable to serve their duties.|
|Trust Agreement||A trust agreement is a legal document that details property and assets and includes instructions on who handles the affairs and where the money goes upon the grantor’s death.|
|Will||A will is a legal document that coordinates the distribution of your assets after death and can appoint guardians for children who are minors.|
As the name entails, a trustee usually manages the assets of a trust. However, they can play a role in other situations, too. Other common types of trustees include:
- Investment trustees: These trustees make day-to-day decisions on investments and strategies in a portfolio or business account.
- Bankruptcy trustees: These are trustees appointed by the Department of Justice’s U.S. Trustee Program, who administers and oversees an individual or business bankruptcy.
- Charitable trustees: These trustees manage the assets in a charitable trust and distribute them to specific charities and nonprofits according to the trust owner’s wishes.
- Corporate trustees: These are financial institutions or investment firms that manage trusts on behalf of their clients.
What does a trustee do?
Trustees manage money and assets that have been put aside on behalf of another person while following the rules of the trust. The trust agreement will usually detail what a trustee can and can’t do in the role.
Many people are their own trustee for as long as they’re mentally able to do the job, and if they’re married, they might allow their spouse to act as a trustee on their behalf. If they’re not married, or the spouse isn’t able to act as the trustee, that’s where a successor trustee comes in to manage the trust. The most important aspect of a trustee’s duties and responsibilities is to always act in the best interest of the trust.
Trustee duties and responsibilities
Trustees have many responsibilities, from taking care of the day-to-day finances of the trust to distributing assets to beneficiaries. A trustee’s specific duties are dependent upon what’s listed in the trust agreement and are sometimes dictated by the type of assets being held. Here are some examples of important duties and responsibilities of a trustee:
- Protect the trust’s property and assets
- Act in accordance with the trust document
- Avoid conflicts of interest and put the trust document first
- Keep detailed records
- Give beneficiaries and federal and state agencies routine reports
- Invest and diversify assets when necessary
- Prepare tax-related forms and filings
- Answer beneficiaries’ questions as needed
A trustee is also responsible for paying the federal income tax on behalf of the trust. Any income taken in by the trust that’s higher than the value of its distributions to its beneficiaries is usually subject to income tax.
Who should you choose as a trustee?
A trustee needs to be both trustworthy and responsible with money to manage a trust. For this reason, you may consider the following people to manage your trust:
- A spouse
- A friend or family member
- A professional trustee, often with legal or financial expertise
- A trust company or corporate trustee
As the name itself suggests, the trustee should be trustworthy. Whoever is chosen as trustee, it’s important for an individual to revisit that choice every few years. The person who is perfect for the job right now might not be the ideal candidate down the line. An attorney or financial advisor can ultimately help determine who can act as the best trustee.
What’s a trustee of a property?
The trustee of a property is essentially the person or firm that holds and handles the property in question. The trustee also holds the legal title to the property and is the record owner. Their name will also appear on any deeds related to the piece of real estate.
How many trustees can a trust have?
There’s no limit on how many trustees a trust can have, but it might be beneficial to keep the number low. This way, you prevent potential disagreements that can happen among multiple trustees. The more trustees named, the greater the chance they’ll have different ideas about how the trust should be managed. Additionally, there can be higher costs associated with more trustees since trustees are usually paid for their services.
Do trustees get paid?
Trustees get paid some type of compensation to fully perform their duties. Trustees are paid out of the trust assets and are usually paid hourly, although sometimes they’ll be compensated as a percentage. A trustee might be required to keep a detailed log of all their activities, including timeframes and tasks, to ensure they receive full reimbursement for their services.
Trusts give individuals peace of mind knowing that the financial health of their loved ones will be taken care of long after they’re gone. Serving as a trustee requires time and patience, but also the ability to fulfill the duties of the position. Due to this, trustees have a critical responsibility in ensuring that a trust is handled properly, so it’s important to choose a trustee carefully to guarantee that a person’s finances are being handled properly down the line.