What does a Trustee do?

The trustee manages and disburses the trust assets to the beneficiaries according to the guidelines you set out in your will or trust documents. This includes:

  1. Finding and collecting trust assets if you have not already put them into the trust and making sure they are all registered in the trust name. This includes finding and collecting proceeds of insurance policies and retirement accounts that name the trust as beneficiary, setting up a trust bank account, obtaining a trust EIN, etc.
  2. Managing trust assets according to guidelines you provided in your will or trust instrument– which includes:
    • Developing and carrying out an investment strategy that maximizes income to income beneficiaries while balancing the need to grow the principal for any residuary beneficiaries.
    • Buying and selling stocks, bonds, real property and other investment vehicles.
    • Hiring and working with professional service providers – investment advisors or financial planners, accountants, lawyers, insurance agents, property managers.
    • Managing a business or properties if owned by the trust.
    • Balancing interests of multiple beneficiaries.
  3. Disbursing income (and principal if the trust documents provide) to the beneficiaries according the standards you have set forth. This can involve trying to reason with beneficiaries who demand disbursements that do not fall within the guidelines you set.
  4. Providing an annual accounting (or more frequent) to the beneficiaries, which requires keeping accurate and detailed records of investments, income, expenses, and taxes. He must allow beneficiaries access to trust records while also maintaining the privacy of other beneficiaries.
  5. Preparing and filing trust tax returns.
  6. Enforcing and defending claims against the trust.
  7. Trustees of special needs trusts will need to make sure payments from the trust won't disqualify or reduce government benefits – such as SSI, Medicaid and housing subsidies - that the beneficiary receives.

Fiduciary Duties of a Trustee;

The trustee, like your executor, has a fiduciary duty to the beneficiaries of the trust. This means he owes them a duty of loyalty. He must invest and manage the assets of the trust solely in the interests of the beneficiaries - even at the expense of his own interests, taking the same care with the assets of your estate as he would with his own. If he is a professional with special skills, he will be held to a higher standard. He is potentially liable to beneficiaries if he or she breaches that duty. He is not permitted to benefit at the expense of the beneficiaries and cannot commingle his own funds or assets with those of the trust. He also cannot self-deal, which means he cannot borrow from, lend to, buy assets from or sell assets to the trust. Even if your will or trust document permits him to take some or all of these actions, which they often do, the trustee should exercise extreme caution when doing so. The trustee also has a duty of impartiality when there are multiple beneficiaries, meaning he cannot favor one over the other. There is a potential for conflict if he or his kids are named beneficiary, even contingent or residual beneficiary. He must maintain accurate accounts of all assets and investments and all amounts paid out from the estate and be prepared to provide access to those records to the beneficiaries.

If the trustee breaches his fiduciary duty to the beneficiaries, they can sue him and obtain a judgment against him personally.

So who should you choose as Trustee?

  1. Someone you trust, both to be scrupulously honest and to carry out your wishes. This would preferably also be someone the beneficiaries know and trust.
  2. Someone who cares about your beneficiaries and understands their needs.
  3. Someone who shares your values or at least understands your values and will be willing to carry them out. Most trusts provide for the trustee to distribute for the health, education, maintenance and support of the beneficiaries. You can provide some guidance about what those mean to you, but you canÕt to account for all situations that may arise in the future. You want someone who will interpret health, education, maintenance and support the same way you would. Someone who doesnÕt travel may not approve trips that you would consider educational. Someone who went to a public college may not approve tuition at a private institution, while you would have.
  4. Someone who is willing to serve as trustee. Even if your trust estate is not complex, the trustee still has to invest the assets and keep careful records. If your trust is complicated or your beneficiaries are difficult to deal with, it may be difficult to find someone who has or wants to spend the time required to handle all of the responsibilities.
  5. Someone you expect to be around for as long as the trust will last. The obligations can go on for years – until minor children reach 18 or a later age that you specify, or can last for a generation or more if you set up a legacy trust. This may mean a parent or older sibling is not the best choice.
  6. Someone with financial skills or the ability and desire to hire and work with people who has financial skills.
  7. If the trust is for the benefit of your minor children, you may choose the same person you named as guardian of their person. But someone who is great with the emotional aspects of raising a child may not want, or be the best choice, to manage investments and other financial decisions required of a trustee.
  8. If the trust will own a business, then you may want someone with experience in running that kind of business.
  9. Is the beneficiary unreasonable, demanding or litigious? If there is more than one beneficiary, is there likely to be conflict among them? If so, then you want someone that will be able to calmly handle the drama. You probably also want to appoint someone who wonÕt just give in to beneficiary demands but can deal with issues without creating animosity. If the beneficiary is potentially litigious, you may want to name a corporate trustee – you donÕt want to throw a family member under the bus.

Corporate trustees are usually only cost effective [makes sense] if the trust estate is large. Many corporate trustees wonÕt handle estates worth less than $1 million and, if they do, may provide less attention to the smaller trust accounts. Banks with investment arms may favor investments offered by their own institution. However, corporate trustees have the financial, record keeping, tax and legal expertise to manage trust estates and can be more objective in dealing with troublesome beneficiaries than a family member.Corporate trustees are generally paid a percentage of the value of the trust estate each year.

Co-Trustees – will need to determine how decisions will be made if they donÕt agree. They can provide oversight and provide continuity – if one ceases to serve, the other can carry on. You may choose to name two or more family members or you may prefer to name a family member to provide the personal relationship to your beneficiaries and an institutional trustee to provide financial expertise and experience.

Successor Trustees: You need to provide for replacement and successor trustees or a means for their selection in the event your first choices become unable or unwilling to act.