Responsibilities of a Trustee

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 What Is a Trustee?

A trust is a legal instrument that can transfer property to someone else. Trusts also permit property owners, known as “settlors,” to have the trust property operated on behalf of someone else, called a trustee. Trust laws can differ from state to state, but in general, trusts are an efficient means of transferring property so that the property’s owner can control and manage it.

An example of this would be how a property owner may place specific requirements on the trust assets. These conditions would need to be met before the property would be transferred. An express trust is willfully and intentionally created. The trust’s creator distributes property or funds to a named trustee, who then holds the property “in trust.” This means that the trustee holds legal title to the trust. The property is held in trust by the trustee subject to the beneficiary’s rights.

The creator of a trust is typically the person to name the trustee. If a trust document does not explicitly name a trustee, the court will appoint one. As previously mentioned, the trustee is responsible for giving out property to beneficiaries and is to complete distribution according to the trust’s terms.

Trustees often oversee trusts used in estate planning. A trustee may be named in many situations. Nearly all of those situations involve naming a trustee to hold and administer property for the benefit of another individual or organization. In addition to managing trusts, trustees are used in bankruptcy, overseeing investments, and organizing a charity’s assets.

Trusts are often utilized in estate planning, and the trustee plays a vital role in handling the trust’s assets on behalf of its beneficiaries. The beneficiaries are the people or organizations for whose benefit the trust was founded by the trust’s creator, known as its “grantor.”

If the trustee fails to do their assignment accurately, the trust may lose its assets and be unable to help its beneficiaries. Further, trustees may be held financially responsible for any damages to the trust or its assets caused by their actions.

What Are the Types of Trustees?

As the name entails, a trustee usually manages the assets of a trust. However, they can play a part in other circumstances.

Other common types of trustees include:

  • Bankruptcy trustees: These trustees are established by the U.S. Bankruptcy Court to manage and distribute the assets of a person or company that has declared bankruptcy.
  • Charitable trustees: These trustees handle assets held in a charitable trust and disseminate them as directed by the trust creator.
  • Investment trustees: These control the day-to-day operations of an investment portfolio or account.
  • Successor trustees: These trustees step in to handle revocable living trusts when the individual who made the trust dies or becomes incapacitated.
  • Corporate trustees: These are departments at financial institutions or investment firms that create and oversee trusts on behalf of their customers.

What Is a Trust?

To comprehend the role of a trustee in the estate planning process, you must understand what a trust is and how they are used. A trust is a legal agreement where the creator passes legal title to their property to a trust that a third-party trustee operates on behalf of its beneficiaries. The trustee acts in a fiduciary role, which means they are liable for distributing the trust for the sole benefit of the named beneficiaries under the terms of the trust agreement.

Trusts are often used in estate planning because they can be arranged to determine how assets and property pass to the grantor’s beneficiaries. While you could do the same thing with a will, trusts bypass the probate process and let your beneficiaries get more immediate access to your assets after you die.

What Are the Duties of a Trustee?

Trustees have a general fiduciary duty to act in the best interests of the trust’s beneficiaries. But their entire responsibilities are laid out in the document that created the trust, which could be either a trust agreement or a will. The trustee’s capabilities are usually confined to those laid out in the document.

In most cases, trustees control allocations from the trust to its beneficiaries and how those assets are invested. But sometimes, a trust may authorize a trustee to make uneven distributions to beneficiaries. Since these skewed distributions can create disputes between the trustee and some beneficiaries, the trustee should be mindful of any discretion over distributions before consenting to be a trustee.

Trustees are also accountable for creating investment strategies, managing investments, paying the trust’s bills, and insuring any property it owns. Ultimately, a trustee is responsible for paying the federal income tax on behalf of the trust. Any income earned by the trust that surpasses the value of its distributions to beneficiaries is usually subject to income tax.

What Are Some Trustee Duties?

The specific duties assigned to any given trustee will likely vary based on the nature of the trust relationship. Duties may also depend upon each state’s business, finance, or estate laws. The trustee will be responsible for managing, investing, protecting, and safeguarding the settlor’s assets in the trust. As the law regards these duties as important obligations, a trustee is legally required to exercise particular fiduciary duties.

Fiduciary duties specific to a trustee include the following:

  • Duty of Loyalty: The trustee must ensure that the beneficiary’s interests in the trust property are protected. As such, they cannot take any actions that favor themselves. An example of this would be using the trust funds for their gain;
  • Duty of Care: Trustees are to decide when, how, and what to invest in. They must make reasonable, prudent investment decisions.
  • Duty to Separate Funds: The trustee does not mix their funds with those of the trust. They cannot mix the trust assets with their assets or bank accounts;
  • Duty to Safeguard: This duty requires that trustees keep the trust assets safe. Trustees owe a duty to utilize methods of safeguarding assets to avoid theft. An example of this would be installing antivirus and anti-malware software, if the money is invested online, to prevent the trust account from being hacked into;
  • Duty to Invest: Should the trustee decide to invest the trust asset, they must ensure that the trust earns money while in the trustee’s care. This is similar to the duty of care;
  • Duty of Accounting: The trustee is to accounting and keeps records of all financial transactions that concern the trust. Such records should include expenses related to administering the trust (such as broker fees) and money spent to improve the trust. An example of the latter will be if the trust is a rental property. The trustee spends money to repair the property to make it more desirable to tenants and generate income for the trust’s beneficiary.

Do I Need an Attorney for Assistance With Trustee Laws and Duties?

If you face legal issues involving trustee duties, you should consult with a skilled and knowledgeable trust attorney. An experienced estate attorney can review the terms of the trust, draft a trustee relationship clause, or file a lawsuit on behalf of the beneficiary. Finally, an attorney can represent you in court as needed.

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