Are you preparing or updating your estate plan? If so, you may be wondering about the roles and responsibilities of a trustee, which is a vital role when you have a living trust as part of your estate plan. Trustees are individuals or entities entrusted with managing, administering, and distributing the assets in your trust according to its instructions. And, as a fiduciary, the trustee must perform the role’s various duties in the best interest of your beneficiaries.
Understanding the tasks that will need to be managed after your death can help you select the right person or entity for this role, ensuring the best outcome for you and your beneficiaries. When considering your choice for trustee, it’s important to factor in the complexity of your estate plan, the types of assets you have, and your personal preferences. For example, if you have minor children, beneficiaries with special needs, or business interests, these factors can influence your choice of a trustee. However, if your estate is straightforward and you only have a will rather than a trust, you likely won’t need a trustee.
Here is an overview of trustees and their responsibilities to help you explore your options.
Key responsibilities of a trustee
1. Acting as fiduciary: The trustee has a legal and ethical obligation to act in the best interests of the trust beneficiaries. This includes being honest, acting with integrity, and avoiding conflicts of interest.
2.Managing trust assets: The trustee is responsible for managing the assets held in the trust. This may involve:
- Investing trust assets prudently to preserve or grow the estate.
- Selling or purchasing assets as needed.
- Maintaining properties or other physical assets.
- Paying bills, taxes, and other expenses associated with the trust.
3. Keeping accurate records: Trustees must keep detailed records of all transactions involving the trust, including income, expenses, investments, and distributions. This is important for transparency and for providing beneficiaries with periodic statements.
4. Distributing assets to beneficiaries: The trustee is responsible for distributing the trust assets to beneficiaries according to the terms of the trust and after paying the estate’s debts, taxes, and liabilities. This can involve one-time distributions, staggered distributions (for example, for children at certain ages), or ongoing support for a beneficiary’s needs.
5. Tax filing and compliance: Trustees must handle the trust’s tax obligations, including filing annual income tax returns and any other required state or federal filings. They may also need to work with accountants or tax professionals to ensure compliance.
6. Communicating with beneficiaries: The trustee must keep beneficiaries informed about the trust’s status, such as providing regular accountings or reports. They must also respond to beneficiaries’ questions or concerns and act impartially to all beneficiaries.
7. Following the trust terms: The trustee must strictly adhere to the terms of the trust document. This includes following any specific instructions regarding the use of funds, special provisions for beneficiaries, or other conditions set by the grantor (the person who created the trust).
8. Handling legal matters: The trustee may need to address legal issues related to the trust, such as defending the trust against claims, negotiating settlements, or working with attorneys for guidance on complex legal matters.
9. Delegating when appropriate: While the trustee may delegate certain duties to professionals (such as investment managers, accountants, or attorneys), the trustee remains responsible for overseeing these activities and ensuring that they align with the trust’s objectives.
As you can see, a trustee’s role can be complex and demanding, requiring financial, legal, and ethical judgment to manage the trust effectively. Further, trustees are not allowed to change or disobey the terms of the trust, ignore judicial directives, and put personal gain over fiduciary duty. They also cannot hide information from beneficiaries or drag out the trust’s administration for an unnecessarily lengthy period.
Types of trustees
There are three main types of trustees from which you can choose:
- Individual trustee: A family member, friend, or trusted advisor who serves as the trustee. They may provide a personal touch to your estate that’s important to you, but it may be a burden for them.
- Corporate trustee: A trust company, attorney, or other third party who provides professional trust management services. They bring expertise, impartiality, and continuity.
- Co-trustees: Two or more trustees who share responsibilities. This can provide checks and balances but may require more coordination and cooperation, which could complicate or delay the estate process.
When to consider a corporate trustee
A corporate trustee can be a beneficial choice in certain circumstances where professional management, stability, and expertise are needed. While a friend or family member may be an easy and comfortable choice for trustee of your family trust, consider both the burden you are putting on that person and their ability to carry out all the trustee’s duties.
Some of the situations that might warrant a corporate trustee include:
- A sizable estate or complex assets such as multiple real estate properties, business interests, significant investment portfolios, or international assets. A professional trustee has the knowledge to handle distinct assets or has access to other professionals who can provide appropriate counsel. When it comes to tax planning, investment management, and legal compliance, leaving estate decisions to an unexperienced individual may be not just risky but also a lot for a family or friend to bear. After all, they’re going to be grieving your passing and comforting other loved ones.
- If you have a special needs trust, charitable trust, or generation-skipping trust, for example, a corporate trustee can provide long-term continuity. Corporate trustees do not retire, become incapacitated, or pass away, ensuring long-term management. In addition, trusts often require ongoing administrative tasks such as record-keeping, accounting, regulatory compliance, and tax filings. A corporate trustee has the resources and systems to handle these duties efficiently and accurately.
- An impartial third-party who acts as trustee can help avoid conflicts. They make objective decisions based on the trust document without the emotional involvement that a family member or friend might have. A corporate trustee will serve as a neutral party, ensuring that all decisions are made in accordance with the trust’s terms and in the best interest of all beneficiaries.
- While corporate trustees do carry a cost, typically charging fees based on a percentage of the trust assets or a flat fee, it may be justified by the level of expertise and service provided.
The bottom line
Given the weight of the role of a trustee in handling your trust when you die, understanding what they can and cannot do in the role is important. If you don’t have a trusted and knowledgeable individual to appoint, or your estate is large or complex and requires professional management, or you prefer the impartiality of a third-party, you might consider hiring a corporate trustee.
At Mercer Advisors, our integrated approach to comprehensive wealth management includes an offering for trustee services. When you collaborate with us, your hand-picked wealth advisor coordinates specialists from our financial planning, tax planning and preparation, estate planning, insurance solutions, investment management teams, and other specialties to help ensure every aspect of your financial life is attended to. You may also bring in your outside counsel or other experts to consult with our team, if you wish.
If you’re ready to learn more, let’s talk.
