When you are working on your estate plans and setting up trusts, there are many details you need to be aware of. Not only do you need to select the right trustee to administer your trust, but you must fully understand the responsibilities of a trustee so you can make an educated decision about who is the best fit for the job.
Your dedicated estate planning attorney at The Germany Law Firm can help guide you through the process of setting up a trust and ensure you have the information you need to choose the right trust administrator.
What Is A Trust?
A trust is an account that is capable of owning assets. Multiple types of trust can be available based on your individual financial needs. Trusts contain instructions allowing you to determine who will receive the assets within the trust after you pass away. Some of the most common types of trusts include:
- Testamentary trusts
- Irrevocable trusts
- Revocable trusts
More About Living Trusts
A living trust allows the grantor to transfer assets into it. When this happens, the assets are no longer titled in your name and are transferred to the trust. For this reason, when you pass away, you can ensure your estate avoids probate, as the assets are no longer in your name. Then, the trustee or successor trustee will step in and handle the asset distributions as described in your instructions.
Who Is Involved In A Trust?
When you set up a living trust, multiple parties are involved. These include:
- The grantor – Also known as the trustor, this is the person who creates the trust.
- The trustee – Trustees manage the assets contained within the trust and handle trust distributions.
- The successor trustee – You can think of this as a backup trustee who will step in for the trustee when they can no longer do so or choose to step down as trustee.
- The trust management company – If you choose a trust management company or corporate trustee, they will handle the trust’s affairs instead of a friend or family member.
- The beneficiaries – These are the parties who will receive trust distributions and assets when you pass away.
What Is A Trustee?
The trustee is the person or entity responsible for the assets held within the trust. The person who creates the trust, the grantor, often assumes this responsibility until they become incapacitated or passes away. At that point, the successor trustee would step in and handle the trustee’s duties.
This is different from the executor of an estate, as executors manage the decedent’s assets as outlined in the world. Trustees handle trusts exclusively and only after having been named as such.
Responsibilities Of A Trustee
Choosing the right trustee is essential, as they will have many important responsibilities. Generally, their primary responsibility is to handle all of the trust’s affairs. Therefore, the question of what a trustee does is often more complex than a simple answer.
The trustee will be responsible for following the instructions contained within the trust. This means they will still need to keep their own investments and personal finances separate from the trust and they cannot use the trust for their own benefit. Here are some of the other responsibilities and duties of trustees:
They Must Act As A Fiduciary
First, trustees must always act in the trust’s and beneficiary’s best interests. This is a high standard when it comes to trust distributions and investments.
They Must Understand How The Trust Works
Trustees must understand how trusts work. They must understand who the beneficiaries are, and the instructions contained within the trust, and handle distributions. They should also be prepared to answer any questions beneficiaries might have and provide tax and financial statements to beneficiaries.
They Must Preserve Trust Assets
Trustees are responsible for preserving the trust assets. However, the grantor can give trustees the authority to invest trust assets accordingly after doing due diligence.
They Must Administer The Trust
Trustees are obligated to make ongoing decisions regarding the trust. This may include:
- Administering assets to beneficiaries
- Making sure beneficiaries receive payments
- Following the trust’s discretionary powers
- Determining how much the beneficiary should receive in distributions
They Must Handle Trust Tax Filings
Trustees have an obligation to prepare tax returns, file tax documents, and deal with all other tax-related issues regarding the trust. They should always keep thorough records and be ready to handle any tax implications.
The trustee’s duties can vary on a case-by-case basis, depending on the instructions contained within the trust. This makes them one of the most flexible estate planning tools for families hoping to set future generations up for success.
Choosing The Right Trustee
Since the trustee controls the trust, selecting the right trustee is crucial. Making sure you have confidence in your trustee is an excellent place to start. It would be best if you also planned to choose a trustee who is financially savvy, makes intelligent financial decisions, and understands their responsibilities as the trust administrator. Here are some of the parties who are often selected as trustees:
Friends Or Family
More often than not, grantors will choose family members or friends to act as trustees. This is because they trust these parties more than they trust a stranger. Although you might have more peace of mind with a friend or family member, choosing someone so close to you could create resentment within your family.
If family members disagree with the trustee’s decisions, it could cause drama when you pass away. Alternatively, choosing a friend or family member also means they will likely understand your family dynamics and the decisions you would have made. However, only assign a friend or family member as your trustee if you get their permission.
A Trust Attorney
When you do not have close friends or family members or are worried about potential family disagreements after choosing one as your trustee, appointing a trust attorney could be your best option.
Since trust lawyers are non-partial and have no financial interests in acting as trustees, you can be sure your instructions will be followed as intended. Your lawyer will also have insight into how your family works and your financial goals, so they are prepared to handle any potential disagreements upon your passing.
A Trust Management Company
A trust management company could be a good option when looking for a professional prepared to handle any disagreements between beneficiaries. Since the trust company will follow the trust’s instructions without emotion and be ready to deny beneficiaries distributions when needed, they may be one of the most relied-upon options.
However, removing a trust company as a trustee can be difficult, so you should discuss this option with your estate planning attorney before you make your decision.
Frequently Asked Questions About Trustees
Now that you better understand what responsibilities your trustee will have, you likely have other questions regarding how trusts work and how to prepare your trustee for their role. Here are answers to some of the most frequently asked questions regarding trustees. If you have additional questions we did not answer on this page, don’t hesitate to get in touch with our office to discuss your case details further.
What do I need to do after being selected as a trustee?
If you have been selected as a trustee, you should discuss any questions with the grantor. You should know about any insurance policies, have copies of trust documents, and be aware of the assets contained within the trust.
It is not unusual for grantors to remain private regarding the details of the trust at first. However, it is essential to familiarize yourself with your responsibilities, know who the beneficiaries are, who the successor trustee is, and what the grantor’s instructions might be.
Can a trustee be personally liable?
Yes, trustees can be held personally liable as they have a fiduciary duty to act in the best interests of the trust and beneficiaries. Trustees can best protect themselves from liability by keeping detailed records and understanding every detail of the trust’s instructions.
What is the difference between the beneficiary and the trustee?
The difference between a beneficiary and a trustee is that the trustee is responsible for the contents of the trust, and beneficiaries are issued distributions from the trust. The trustee is in charge of the trust and can deny beneficiary distributions as needed.
Are trustees paid?
Yes, trustees are paid what is known as reasonable compensation for their responsibilities. The amount of compensation can vary widely depending on the trustee’s individual role and responsibilities.
Contact An Estate Planning Lawyer For Help Today
Now that you have a better understanding of what your trustee’s responsibilities will be, it is time to start creating your trust and other estate plans. For more information, attend our in-person Trust School in May 2023 to learn how trusts work and what to expect after setting up yours.