What is a Trustee?

You may think that estate planning is something that’s important only for the very wealthy or those who have extremely complicated financial holdings, like businesses, multiple properties, or competing heirs. In reality, however, if you don’t have a legal plan in place, you’re leaving your entire legacy up in the air, to be decided by the courts in your state.

Estate plans can vary greatly, and there is no one-size-fits-all solution. Whether you require a basic Willor a more complex Trust with an appointed Trustee (or both), the EstatePros community can help.

What is a Trustee?

A Trustee is an individual who is responsible for safeguarding the assets held within a Trust. Their duties include managing and administering the finances of the Trust according to the instructions given.

Usually, the person who creates the Trust serves as the Trustee until they are no longer able to fulfill the role due to incapacity or death. At that point, a Successor Trustee takes over.

The Trustee’s responsibilities may involve keeping track of expenses and income, distributing funds to beneficiaries, filing taxes on any income generated by the Trust, and maintaining records of other transactions that occur.

In essence, a Trustee is simply the person named to manage a Trust’s assets. The most crucial aspect of being a Trustee is acting in the best interest of the trust. When selecting a Trustee, it is important to choose someone who can set aside personal goals and follow the instructions outlined by the Trust.

How to Choose the Right Trustee

Selecting the appropriate Trustee can be a challenging task, especially if you have children who will rely on your Trust. The responsibility of making the right decision can feel overwhelming. However, there are a few factors you can consider to feel more confident in your choice.

Anyone you trust and who is over 18 years old can be your Trustee.

Friends or family

Friends or family members are a common choice, but this option may lead to family conflicts and resentment. Nevertheless, if you have a trustworthy friend or family member, the peace of mind that comes with this option may be worth it. Someone close to you will understand your family dynamics better, but be sure that the person is willing to take on the responsibility.

Lawyer or Attorney

If you do not have a close friend or family member to assume the role or are worried about disagreements among your loved ones, appointing an impartial third party like a lawyer may be a good solution. If you have an established relationship with your attorney, they will have insight into your family dynamics. However, this option may cost more and reduce the amount your beneficiaries receive.

Trust Company

Hiring a Trust company can be an excellent solution for many reasons. Although you will pay a fee for their services, it can be worthwhile if you anticipate any contention among beneficiaries. A Trust company will take a stern approach to your estate and safeguard your legacy as per the guidance of the Trust.

It is important to note that removing a Trust company may be difficult if you choose this option.

What Powers Does a Trustee Have? Trustee Duties and Responsibilities

The Trustee has various responsibilities and duties, with the primary objective being to execute the instructions of the Trust. The primary aim of any Trust is to safeguard your heritage. Therefore, when considering the functions of a Trustee or their role, it is important to note that there are numerous aspects to their job. Trustees may be required to perform some or all of the following tasks:

To act as a fiduciary: means to be responsible for safeguarding investments and managing the distribution of a Trust. This role requires a high level of accountability, with the intention that a Trustee should prioritize the Trust over their own personal finances.

Comprehend the conditions of the Trust and guarantee the security of the assets: To guarantee the security of assets held in a Trust, it is important for the Trustee to comprehend the Trust’s terms. The Trustee should be aware of all beneficiaries and have the ability to examine all records to confirm their accuracy and organization.

Allocate resources as needed: If the Trust requires it, a Trustee should invest assets with the aim of safeguarding them both presently and in the long run.

Administer the Trust: To follow the instructions of the Trust, the Trustee must distribute and/or manage assets to the beneficiaries.

Continuously make decisions: Trustees must be prepared and capable of making choices regarding the timing and manner in which beneficiaries receive payments, as well as other aspects of the Trust. It is important to note that these decisions are related to the discretionary powers granted to a Trustee. For instance, some Trusts mandate that the Trustee distribute all earned income to beneficiaries, leaving little room for discretion. However, the Trust might also allow for additional distributions at the Trustee’s discretion, which requires them to assess whether there is a genuine need and determine the appropriate amount to distribute.

Monitoring records and preparing tax-related forms/filings: It is important for Trustees to maintain accurate financial records and statements, as well as prepare and submit tax-related forms and filings, in addition to completing tax returns.

Interact with and respond to the queries of recipients as required: Interaction may involve tasks like furnishing statements and details about their accounts, and presenting a summary of tax reports.

Answer inquiries: As a Trustee, a significant aspect of the role involves responding to inquiries from beneficiaries and making sure that the information is communicated effectively and promptly.

The responsibilities of a Trustee can evolve with time. Typically, when establishing a Trust, the creator serves as both the Trustee and beneficiary, granting greater freedom in decision-making. This is logical as the individual is accountable for themselves. However, if they become unable to manage the Trust or pass away, a Successor Trustee designated by the creator takes over.

Frequently Asked Questions about the responsibilities of a Trustee?

Despite having knowledge and understanding of the fundamental duties of a Trustee, there are frequently multiple inquiries that arise. Familiarity with the responses to certain questions can alleviate any anxiety or doubt that a Trustee may experience while assuming their responsibilities.

Is it possible for a Trustee to be held personally liable?

Usually, a Trustee can be held accountable for their actions. They are required to make decisions that benefit the Trust and its beneficiaries. Trustees can safeguard themselves by maintaining precise and comprehensive records of financial transactions and distributions. The most effective way for a Trustee to protect themselves is to have a thorough understanding of the Trust’s guidelines.

What distinguishes a Beneficiary from a Trustee?

The distinction between a beneficiary and a Trustee is straightforward. A beneficiary receives advantages from the Trust, while a Trustee is responsible for overseeing it. Trusts are established to benefit another person or entity (usually a child or relative). Trustees are accountable for holding and administering all the assets and property within the Trust, as well as distributing assets to the designated beneficiaries when necessary.

What distinguishes a Trustee from an Executor?

The difference between a Trustee and an Executor lies in their respective roles in managing Trusts and Wills. A Trustee is responsible for managing the assets within a Trust, following the directives of the Trust. An Executor, on the other hand, manages an estate by distributing the assets of a deceased person according to their Will.

What does the term Successor Trustee mean?

A Successor Trustee is someone who is designated as the second choice to act as a Trustee. Usually, the person who establishes the Trust serves as the Trustee until they become incapacitated or die. Then, the Successor Trustee takes over. If the Successor Trustee is unable or unwilling to fulfill their duties, it’s wise to name an alternate in case something happens to the first choice.

What is the time frame for a Trustee to finalize a Trust?

As long as a Trustee is following the Trust’s instructions and working efficiently, they can take as much time as necessary to settle the Trust. Typically, it takes around 12 to 18 months to distribute all assets and complete the process, but it can take at least six months or more depending on the complexity of the Trust and the age of the beneficiaries. If a Trust is created for minor children, it may remain active until they reach a certain age.

What is the method of payment for a Trustee?

A Trustee is compensated with a reasonable amount for fulfilling their necessary duties, which is paid from the Trust’s assets. Sometimes, the Trust may specify the compensation amount. It is important for a Trustee to understand their role and responsibilities in order to perform their duties effectively. Whether you need to update an existing Trust or create a new one, the EstatePros community can provide estate planning services that safeguards families and their legacy.

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