Serving as a Trustee: Responsibilities You Should Understand

While many people choose a family member or friend for this role, serving as a trustee involves more than simply following instructions. It requires organization, sound judgment, and a clear understanding of the responsibilities involved.

What Does a Trustee Do?

A trustee manages the assets held in a trust and administers them according to the instructions outlined in the trust document. The person who creates the trust, known as the grantor, establishes the rules for how and when the assets should be used or distributed. The trustee's role is to carry out those instructions and ensure the trust is administered properly.

A trustee also serves in a fiduciary capacity, which means the trustee must always act in the best interests of the beneficiaries. The trustee cannot use trust assets for personal benefit and must avoid conflicts of interest when making decisions. In other words, every action taken as trustee should reflect the grantor's wishes and benefit the beneficiaries of the trust.

Choosing the Right Trustee

Selecting the right trustee is an important decision when creating a trust, and it's important to consider whether that person has the time, organizational skills, and judgment needed to handle the responsibilities.

A good trustee should possess several important characteristics, including:

• Integrity. Trustees must act honestly and in the best interests of the beneficiaries.
  
  
• Organization. Managing a trust involves documentation, financial records, and ongoing reporting.
  
  
• Objectivity. A trustee must follow the terms of the trust even when beneficiaries may disagree.
  
  
• Patience and communication skills. Trustees often need to answer questions and explain decisions.
  
  
• Time availability. Some trusts remain active for many years and require ongoing oversight.

In addition to naming a primary trustee, most trusts also name a successor trustee. A successor trustee steps in if the original trustee resigns, becomes unable to serve, or passes away. Naming a successor helps ensure the trust can continue to operate smoothly without court involvement.

Some individuals may also consider appointing a corporate trustee, such as a bank or trust company. Corporate trustees can provide professional administration, particularly when the trust involves significant assets, complex investments, or may continue for many years. In some cases, families choose to name both an individual and a corporate trustee to serve together.

Key Responsibilities of a Trustee

While each trust is different, trustees are generally expected to manage and administer it in accordance with the trust document's instructions.

Common trustee responsibilities include:

• Identifying and securing trust assets, including investment accounts, real estate, and other property.
  
  
• Managing and protecting trust property to preserve the assets for the beneficiaries.
  
  
• Investing trust assets prudently and, when appropriate, balancing growth and preservation.
  
  
• Maintaining accurate records of income, expenses, and distributions.
  
  
• Providing a periodic accounting or report that summarizes trust activity.
  
  
• Communicating with beneficiaries and keeping them reasonably informed about trust administration.
  
  
• Making distributions to beneficiaries as outlined in the trust document.

Some trusts provide detailed instructions for distributions, while others allow the trustee to exercise discretion when determining whether a distribution is appropriate. Regardless of the trust's structure, the trustee must follow the trust's terms and cannot deviate from the grantor's instructions.

When Professional Assistance is Helpful

Although trustees are responsible for administering the trust, they do not have to handle every task themselves. Many trustees work with professionals to help manage certain aspects of the trust.

For example:

• Financial advisors can assist with managing investments.
  
  
• Accountants may help prepare tax returns or financial reports.
  
  
• Attorneys can provide guidance when questions arise regarding the trust document or applicable laws.

Working with professionals can help ensure that trust administration is handled properly while allowing the trustee to make informed decisions.

Summary

Serving as a trustee is an honor and a serious responsibility. Trustees are expected to manage trust assets carefully, maintain accurate records, communicate with beneficiaries, and follow the terms outlined in the trust document.

For those creating a trust, selecting the right trustee - whether a trusted individual, a successor trustee, or even a corporate trustee - is an important decision that can affect how smoothly the trust is administered. Understanding the responsibilities involved can help ensure the trust operates as intended, and the grantor's wishes are properly carried out.

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