Whether reviewing your existing trust or creating a new one, you should understand the role a trustee plays in handling trust matters and providing for and protecting your loved ones. Understanding exactly what their responsibilities are will help you make the best choice possible.
What is a trust?
Let's start with the basics: A trust is an agreement between an owner of accounts and property (trustmaker) and another person (trustee) who agrees to manage the accounts and property on behalf of a third party (beneficiary). In most situations, a written document, called a trust agreement, lays out the specific instructions or rules that govern the trust relationship.
What is a trustee?
A trustee is a trusted decision-maker who handles all matters related to your trust. A trustee's responsibilities include collecting income, paying bills and taxes, saving and investing for the future, buying and selling property, providing for loved ones, keeping accurate records, and generally keeping things organized and in good order (more on this below). Depending on the type of trust, you could be the trustee in the beginning and need someone else to act as trustee only when you cannot manage the trust, or you could select a trustee to act immediately.
What types of trustees are there?
When creating an estate plan, there are several types of trustees to consider. An initial trustee is the decision maker that immediately starts managing the trust's accounts and property. You may choose to be the initial trustee if you create a revocable living trust. However, for some types of irrevocable trusts, you will need to select someone else to be the initial trustee.
The successor trustee is the next in line to manage the trust. This person may need to act because the initial trustee becomes incapacitated, dies, or steps down from their role.
You could choose to have one trustee handle the entire trust. You could also name a separate trustee for any subtrusts you later create. For example, you may name your children as the trustees for the subtrusts created for their benefit at your death. In this instance, several trustees may act once the subtrusts are created. However, they will only be responsible for their separate trust and will have no control over other subtrusts that have their own trustees.
What does a trustee do?
Being a trustee involves many different important tasks, including the following:
Managing accounts and property owned by the trust or subtrust. Although the trust owns your accounts and property, a person must carry out most transactions. If the trust owns an investment account, the trustee must watch the investments and request any adjustments that may be needed to ensure the best outcome for the trust and its beneficiaries.
Keeping the trust beneficiaries informed about the trust. Although the trustee decides how trust accounts and property are used, they do so on behalf and in the best interests of the trust beneficiaries. A trustee is required to periodically inform the trust beneficiaries about the status of the trust—what the trust owns, how much the trust is worth, what income the trust has received, and what expenses the trust has paid.
Acting as a point person for trust matters. If beneficiaries have questions about the trust, the trustee is usually best suited to answer them. The trustee is also in charge of filing tax returns and participates in any lawsuits involving the trust.
What should you look for when selecting a trustee?
While it may be advantageous for a trustee to be financially savvy or have a background in tax, law, or finance, they are not required qualifications. When considering potential trustees, we recommend looking for someone with the following qualities:
Ability to ask for help when needed. The trustee does not have to be an expert in every area of trust administration. They can get assistance from financial advisors, tax preparers, and attorneys at the trust's expense to fully carry out their responsibilities.
Be detail-oriented. Trust administration is a process with specific legal steps that must be taken. The trustee will be asked to compile a list of everything that the trust owns and keep accurate records of income and expenses. Being too general with this information can cause tension between the trustee and beneficiaries and could lead to legal action.
Be organized. Depending on what the trust owns, how many beneficiaries there are, and the trust distribution plan, there may be many moving parts. In addition to managing the trust, the trustee will need to ensure they do not mix their personal affairs with those of the trust.
Have good communication skills. Although the trustee has authority over the trust, they are supposed to act in the best interests of the beneficiaries. It is important that the trustee clearly communicate with the beneficiaries, deliver necessary information, and be available to promptly answer any questions that the beneficiaries may have. A trustee must also be able to get along with the beneficiaries.
Follow rules. State and federal laws, as well as instructions within the trust, must be followed. While a trust may have provisions that allow a trustee to use their discretion in some matters, there are other instances in which the trustee is required to do certain things a specific way. Failing to comply with the rules can subject the trustee to potential civil and criminal penalties.
Who can you choose to be your trustee?
Although the choice of trustee is a very serious matter, you have several options available depending on your circumstances and what matters most to you.
Family members. It is common for clients to select family members (spouse, child, parent, sibling, etc.) to be their trustees. Family members likely have an intimate knowledge of your wishes and values, making trust administration easier if you want to leave decisions to your trustee's discretion. If your trustee is also a beneficiary, they could choose not to accept any compensation for acting as trustee because they will already be receiving something as a beneficiary of your trust. However, allowing the beneficiary to be the trustee of your trust could jeopardize or limit protection of their inheritance.
Close friends. Close friends likely understand your values and wishes, making any discretionary decisions easier; however, depending on your family dynamics, your close friends may not want to get involved in any conflicts that arise. Also, if they are not trust beneficiaries, they may want to be compensated for the work they do, which could leave some beneficiaries feeling disgruntled that your trustee is getting money from the trust (even though the trustee is legally entitled to it).
Professional third party. If protecting your beneficiaries' inheritances is important to you, a professional may offer additional protection. Because administering trusts is their profession, they will likely understand every step that must be taken and have the tools to efficiently and accurately do so. However, because trust administration is their job, they will require compensation and will inform you of their fee. This amount will likely be higher than what a family member or close friend would seek for compensation.
Serving as a trustee is a major responsibility. Choosing who will fill this role isn’t a decision to take lightly.
But you don’t have to do it alone. We can help you select, educate, and advise your trustees so they will have support and know what do to next to carry out your wishes. Call Santaella Legal Group, serving all of California, at (925) 831-4840, or reach out to us here.
Keep Reading: