Madison Eubanks

May 14, 2024

Print Share

The Roles and Responsibilities of a Trustee

There are many different types of trusts that can be used in estate planning to achieve a range of various purposes and goals. One common element among all trusts is the appointment of a trustee to manage its assets. 

What exactly does a trustee do? This article will cover everything you need to know about trustee responsibilities, how a trustee should be chosen, and more.

What is a trustee? 

A trustee is a person or entity that holds and administers a trust’s assets or properties for the trust’s beneficiaries. In general, a trustee is tasked with managing a trust’s assets, making decisions in the beneficiaries’ best interest, and carrying out a fiduciary obligation to the trust and its beneficiaries. 

There are three common types of trustees: 

• An individual, such as a friend or family member of the grantor, or the grantor can appoint themself
• An independent investment advisor, accountant, or administrator at a business that is not part of a financial institution specializing in trust fund management
• An institution such as a bank or trust company with employees specializing in the administration, investment, and management of trusts for their clients

How should a trustee be chosen? 

Choosing who is the trustee of a trust is an important decision that should be carefully considered. There are pros and cons to each type of trustee, and the type of trust they’ll be overseeing is an important factor. 

For example, if you choose a friend or family member as a trustee, you can feel confident that the trust is in the hands of someone who understands your values and wishes. However, an individual trustee may have to withstand pressure or resentment from the trust’s beneficiaries or may lack investment skills needed to oversee the trust’s assets. When you appoint an individual, you will also need to appoint an alternate in case your primary trustee becomes unwilling or unable to perform their duties. 

On the other hand, appointing a wealth management or trust company as the trustee ensures that there will be a professional in place to administer the trust for as long as it exists. While this person will be legally obligated to act in the best interest of the trust, it’s likely this type of trustee won’t know you and your beneficiaries on a personal level. 

Finally, appointing a trust attorney or lawyer is a great way to ensure that the trustee is familiar with the trust laws in your state. However, a legal professional may not have the skills to invest the trust funds or grow wealth within the trust. 

In some cases, the grantor chooses to be the trustee for as long as they are able, and appoints a successor trustee to step in when the grantor becomes incapacitated or dies. Often, married couples opt to be co-trustees and, when one spouse dies, the surviving spouse can continue managing the trust.

What are a trustee’s responsibilities? 

Broadly, a trustee is responsible for managing and administering the assets held within a trust according to trust terms. This may include communicating with beneficiaries, investing funds, distributing trust assets, and more. While trust terms can vary based on the type of trust, the type of assets, and the grantor’s wishes, there are some commonalities among trustee duties, including: 

• Acting as fiduciary: First and foremost, a trustee’s role is to administer the trust according to the grantor’s wishes and in the best interests of the beneficiaries
• Investing: Some trusts require the trustee to invest or allocate assets
• File reports and taxes: A trustee must file taxes on behalf of the trust, and provide updates to beneficiaries as required by the trust terms
• Making decisions: Any decisions that need to be made in regards to the trust will fall to the trustee, and decisions should align with the grantor’s wishes and values and the best interests of the beneficiaries
• Administering the trust: The trustee is responsible for distributing payments and assets to beneficiaries according to the trust document, and keep records of all transactions
• Communicating with beneficiaries: Trustees are expected to proactively maintain communication with beneficiaries, providing updates as necessary

Additionally, trustees is obligated to avoid:

• Mixing their own assets or funds with those held in the trust, even if the trustee is also the grantor
• Using trust assets to their own benefit, unless expressly permitted by the trust document
• Showing favoritism toward any beneficiary, unless the trust authorizes it
• Making distributions or payments above what’s authorized by the trust document
• Taking unnecessary risks when investing trust assets

Grantor vs. trustee

What’s the difference? 

A grantor is the person who creates and funds a trust. In some circumstances, the grantor may name him or herself as the trustee and retain the power to manage and distribute its assets for as long as they are able. In this case, the grantor and the trustee are the same person. 

What if a grantor becomes incapacitated?

Typically, if the grantor is the original trustee, the trust document will specify what should happen in the event of the grantor’s incapacitation. In this case, the person named in the trust document as the successor trustee will step in to manage the trust. 

The trustee may also assist by providing documents like a living will or healthcare power of attorney to the grantor’s medical professional, notifying relevant parties like the attorney who prepared the trust document and any co-trustees, ensuring minors or other dependents are cared for, familiarizing him or herself with the trust’s assets, and more. 

If the grantor recovers, this person may step back into their original role of successor trustee or co-trustee. If the grantor dies, the successor trustee must administer the trust according to its terms. 

FAQs

What is a trust? 

A trust is a legal arrangement in which one party, known as the settlor, grantor, or trustor, transfers legal ownership of assets to another party, the trustee, for the benefit of one or more beneficiaries. Trusts are established through a written document, often called a trust agreement, which specifies the terms and conditions of the trust’s operation. 

Read more about trusts here. 

Who is involved in a living trust? 

A living trust is a legal document created by a person during their lifetime that directs how their assets are managed during their life, and how they are to be distributed after their death. Therefore, a living trust involves a grantor, any beneficiaries, and a trustee to oversee the trust. 

Unlike some other types of trusts, a living trust is fully revocable, so the grantor has complete control of all of the assets while alive.

Learn more about living trusts here.