What Is a Trustee? Definition, Role, and Duties
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Summary:
A trustee is a person or entity appointed to manage assets and property on behalf of others. The trustee’s primary role is to manage the trust’s assets, make investment decisions, distribute assets to beneficiaries according to the trust’s terms, and act in the best interests of the trust and its beneficiaries. When choosing a trustee, consider factors such as trustworthiness, financial knowledge, availability, and relationship with beneficiaries.
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Definition of a trustee
A trustee is a person or entity appointed to manage assets and property on behalf of others. There are different types of trustees, including:
- Individual trustees: An individual who manages the trust and its assets.
- Corporate trustees: A trust company or bank that manages the trust and its assets.
- Co-trustees: Two or more individuals or entities who manage the trust and its assets together.
A trustee’s primary role is to manage the trust’s assets and distribute them to the beneficiaries according to the trust’s terms. The trustee also has a fiduciary duty to act in the best interests of the trust and its beneficiaries. If a trustee violates their fiduciary duty, they may be held liable for damages and removed from their position as trustee.
Types of trustee
There are several types of trustees, each with its own benefits and drawbacks. These include:
- Revocable living trust trustee: The person who manages a revocable living trust during the grantor’s lifetime and distributes assets after the grantor’s death.
- Irrevocable trust trustee: The person who manages an irrevocable trust and its assets for the benefit of the beneficiaries.
- Testamentary trust trustee: The person who manages a trust that is created after the grantor’s death according to the terms of their will.
- Special needs trust trustee: The person who manages a trust for the benefit of a disabled or mentally challenged beneficiary.
The choice of trustee will depend on the specific needs of the trust and its beneficiaries. For example, a corporate trustee may be a good choice for large trusts with complex investments, while an individual trustee may be a better choice for a small, simple trust.
Trustee vs. executor
While a trustee and an executor share some similarities in managing assets, there are some important differences between the two roles.
An executor is responsible for managing a deceased person’s estate during the probate process. Their duties include:
- Identifying and valuing the decedent’s assets
- Paying debts and taxes owed by the estate
- Distributing the remaining assets to the beneficiaries named in the will or according to state law if there is no will
Unlike a trustee, an executor’s authority is limited to the probate process, which typically lasts only a few months to a year. Once the probate process is complete, the executor’s role is finished.
In contrast, a trustee’s role is ongoing and can last for many years, depending on the terms of the trust. The trustee is responsible for managing the trust’s assets and distributing them to the beneficiaries according to the trust’s terms.
Another difference is the source of their authority. An executor derives their authority from the probate court, while a trustee derives their authority from the trust document itself.
It’s worth noting that a trustee can also serve as an executor if they are named in the decedent’s will. In this case, the trustee would manage both the probate estate and the trust.
PRO TIP: When creating an estate plan, it’s important to understand the differences between these roles and choose the right person or entity for each role. In some cases, it may make sense to name the same person or entity as both trustee and executor, while in other cases, it may be better to separate the roles to avoid conflicts of interest or ensure that each role is carried out by someone with the appropriate expertise.
Who to choose as a trustee
Choosing the right trustee is essential for the success of the trust. When choosing a trustee, consider the following factors:
- Trustworthiness: The trustee must be someone you trust to manage the assets and property in the trust and act in the best interests of the beneficiaries.
- Financial knowledge: The trustee should have a basic understanding of finance and investing, especially if the trust includes complex assets.
- Availability: The trustee should be available to manage the trust’s assets and make distributions as needed.
- Relationship with beneficiaries: The trustee should have a good relationship with the beneficiaries to facilitate communication and trust.
You may also want to consider appointing a co-trustee or a corporate trustee to provide additional expertise and oversight.
Role of a trustee
The role of a trustee can vary depending on the type of trust and its terms. However, the trustee’s primary responsibilities include:
- Managing the trust’s assets: The trustee must manage the trust’s assets and ensure that they are invested appropriately to achieve the trust’s goals. This includes managing the assets, making investment decisions, and monitoring the performance of the investments.
- Distributing trust assets: The trustee must make distributions to the beneficiaries according to the trust’s terms. This may involve making regular payments or distributing assets at specific times or events.
- Fiduciary duty: The trustee has a fiduciary duty to act in the best interests of the trust and its beneficiaries. This means that the trustee must act with care, loyalty, and prudence, and avoid conflicts of interest.
- Record-keeping: The trustee must keep accurate records of the trust’s assets, transactions, and distributions. This includes keeping track of investments, income, expenses, and taxes.
- Communication with beneficiaries: The trustee must communicate regularly with the beneficiaries and keep them informed of the trust’s activities, investments, and distributions. This helps to build trust and maintain a good relationship between the trustee and beneficiaries.
Trustee FAQs
Can a beneficiary be a trustee?
Yes, a beneficiary can serve as a trustee, but it may create conflicts of interest. If a beneficiary is also the trustee, they must act in the best interests of all beneficiaries, not just themselves.
How much does a trustee get paid?
The trustee’s compensation is typically specified in the trust document or agreed upon by the trustee and beneficiaries. The amount may be a percentage of the trust’s assets or a flat fee.
What happens if a trustee violates their fiduciary duty?
If a trustee violates their fiduciary duty, they may be held liable for damages and removed from their position as trustee.
Key takeaways
- A trustee is a person or entity appointed to manage assets and property on behalf of others.
- There are different types of trustees, including individual trustees, corporate trustees, and co-trustees.
- A trustee’s primary role is to manage the trust’s assets and distribute them to the beneficiaries according to the trust’s terms.
- The trustee has a fiduciary duty to act in the best interests of the trust and its beneficiaries.
- When choosing a trustee, consider factors such as trustworthiness, financial knowledge, availability, and relationship with beneficiaries.
- A trustee is not the same as an executor, who manages assets and property in a decedent’s estate.
- The trustee’s compensation is typically specified in the trust document or agreed upon by the trustee and beneficiaries.
- If a trustee violates their fiduciary duty, they may be held liable for damages and removed from their position as trustee.
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