Key takeaways
A trustee is a person or firm who manages money or assets set aside for someone else's benefit.
Trustees have a fiduciary duty, which means they must act in the beneficiary's best interest.
A trustee manages assets during and after the grantor's lifetime, while an executor handles an estate after death.
Choose a trustee who is trustworthy and responsible with money, and revisit your choice over time.
You may have heard the term "trustee" before, but what does it actually mean? A trustee manages someone's estate plan, investments, or charitable giving on their behalf.
A trustee's duties vary by the type of assets they manage. Still, anyone named trustee must make financial decisions that protect the trust's assets and the beneficiary's best interests.
The assets can range from financial accounts and investments to real estate. Here, you'll learn what a trustee does, how trusts work, and how to choose the right person for the role.
Trustee definition
A trustee is a person or firm entrusted with managing money or assets set aside for someone else's benefit. Trustees make decisions in the best interest of the person who appointed them and the beneficiaries. They usually manage trusts, which are legal agreements that determine how a person's assets and money are handled after they die.
Trustees hold fiduciary responsibilities and must ensure everything is executed as written in the trust document. A trustee can also handle financial matters such as a bankruptcy or retirement accounts.
A few key terms come up often when you talk about trusts. Here's what they mean.
Term | Definition |
Trust | A legal arrangement that ensures a person's assets eventually go to specific beneficiaries. It's also called a living trust. |
Settlor/Grantor | The person who transfers assets into a trust for the future use of their beneficiaries. |
Beneficiary | The person or group for whom the trust was created and who benefits from its assets. |
Successor Trustee | Second in line to serve as a trustee if the current or first trustee is unable to serve. |
Trust Agreement | A legal document that details property and assets. It includes instructions on who handles the affairs and where the money goes upon the grantor's death. |
Will | A legal document that coordinates the distribution of your assets and debts after your death. It can appoint guardians for minor children, and a testamentary trust is a type of trust included in a will. |
Trustee basics: how it works
Once a trust exists, someone has to manage it. That's where the trustee steps in.
When a trust is created, the grantor, sometimes called the trustor, typically transfers assets into the trust. A revocable trust lets the grantor alter, amend, or revoke the trust and its terms during their lifetime. An irrevocable trust is generally more difficult to change once established.
Once the assets are in a trust, the named trustee manages them in accordance with the trust's terms and conditions. The trustee balances their duties to the beneficiaries, preserving and growing assets where possible while distributing money as specified.
Example: trust in action
A grantor may create a trust for the benefit of their minor children. The trustee typically manages the assets until the children reach a certain age, at which time they may receive income or principal from the trust.
Principal generally includes cash, investments, dividend income, trust property value, or other income. The trustee's role can vary by asset and by the trust’s terms, but they must take wise, fair, and impartial actions in the beneficiary's best interest.
What does a trustee do?
Trustees manage money and assets set aside for another person in accordance with the trust’s rules. The trust agreement usually details what a trustee can and can't do.
Many people act as their own trustee for as long as they're mentally able. If you’re married, you may allow your spouse to act as trustee. If you're not married, or your spouse can't act, a successor trustee may manage the trust once you’re unable to. The most important part of the job is to act in the trust's best interest.
Duties and responsibilities of a trustee
A trustee generally juggles several core tasks over the life of a trust. Here's what those duties typically include.
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 typically responsible for paying federal income tax on behalf of the trust. Any income the trust makes that exceeds the value of its distributions is usually subject to income tax.
Trustee vs. executor: what's the difference?
People often mix up trustees and executors, but the two roles aren't the same. The main difference comes down to timing and scope.
An executor is appointed to manage a person's estate after their death, while a trustee manages assets during, and sometimes after, the grantor's lifetime. Executors typically have a more limited scope of duties, like paying off debts and distributing assets according to the will. Trustee duties can be more complex and ongoing.
Exploring trustee types
The right type of trustee depends on the trust's requirements and the grantor's preferences. Each type brings its own strengths and trade-offs.
Institutional trustees
Institutional trustees are usually banks or trust companies that specialize in managing trusts and protecting assets. They bring professional expertise and resources, which helps with complex or long-term trusts. The trade-off is that they may charge higher fees.
Individual trustees
Individual trustees are often family members, friends, or trusted advisors. They offer a personal touch and understand the grantor's wishes. They might lack professional expertise, though, and could face conflicts of interest.
Independent trustees
Independent trustees are neutral third parties who are neither beneficiaries nor closely related to the grantor. They balance professional and personal management for unbiased decisions. This makes them ideal for trusts that require impartiality.
Who should you choose as a trustee?
Your trustee needs to be trustworthy and responsible with money. A few types of people tend to fit the role well.
A spouse
A friend or family member
A professional trustee, often with legal or financial expertise
A trust company or corporate trustee
Plan to revisit your choice every few years, since managing a trust is time-consuming and ongoing. The person who's perfect for the job now might not be the best fit later. An estate attorney or financial advisor can help you determine the best trustee.
Examples of trustees
A trustee usually manages the assets of a trust, but they can also play other roles. Here are a few common examples.
Investment trustees make day-to-day investment decisions and strategies for a portfolio or business account. They work as an investment advisor and oversee distributions to meet the trust's goals.
Bankruptcy trustees are appointed by the Department of Justice's U.S. Trustee Program to oversee a personal or business bankruptcy. They owe a duty to creditors and must act in everyone's best interest.
Charitable trustees manage assets in a charitable trust and distribute them to charities and nonprofits per the trust owner's wishes.
Corporate trustees are financial institutions or investment firms that manage trusts on behalf of clients. They hold a fiduciary duty to act in the best interest of plan participants.
Choose your trustee carefully
Trustees have a critical responsibility to handle a trust properly. If you’re considering setting up a trust now or in the future, you may want to talk with a financial advisor to review your assets and plans.
Here are some things to consider when choosing a financial advisor.