A trust is a legal entity in which you can place assets, like property or money, so that your beneficiaries can access them after certain conditions are met (such as your death). The grantor, or creator of the trust, adds assets to the trust, then someone, known as the trustee, acts as custodian. The trustee is not the legal owner of the trust property; they are simply managing the trust.
You can set up a trust by writing up a trust agreement, which lays out what assets are in the trust, the trustee who manages the trust, how they should manage it, and who receives the assets when some preset conditions are met. In some cases, a trustee may have to manage the trust for years until a beneficiary reaches legal age (usually 18).
There are multiple types of trusts in estate planning, including revocable and irrevocable trusts, and they all need a trustee.
Who is the trustee of a trust?
A trustee, the person who manages the money and assets in a trust, can be almost anyone who is the age of the majority. A grantor appoints a trustee when they create the trust. In many cases, grantors (also known as settlors) who open a revocable trust also serve as their own trustee. Revocable living trusts are a popular alternative to wills because when you die, the assets usually don’t have to go through probate court. The trustee of an irrevocable trust, on the other hand, must be someone other than the grantor.
→ Learn more about a trustor vs trustee
Multiple people can also serve as co-trustees of a trust. Married couples who create a joint trust often serve as co-trustees. When one of the partners passes away, the other becomes the sole trustee.
If you’re managing a living trust, you should also name a successor trustee to take over trustee duties when you pass away. It’s best to name multiple successor trustees so that if one declines the responsibility or just can't perform the duties, then you will have a backup.
→ Find out what happens to a trust when a trustee dies
Using beneficiaries and professional trustees
It’s also possible for beneficiaries to serve as trustees. This is common in the case where someone creates a trust, serves as their own trustee, and then names their child or spouse, who is also the beneficiary, as a successor trustee to take over after their death.
Another option is to name a lawyer or firm as a trustee of your trust. This could be a good option if your estate and financial situation are complex. And since nearly anyone can serve as a trustee, the estate attorney who drafted your trust could be a good option.
If you made a will, you could also name your executor to pull double duty as your trustee.
Trustees are also fiduciaries
Trustees also have a fiduciary duty to act in the best interests in the trust. For example, trustees cannot make investment decisions that benefit themselves above the trust. They also cannot favor certain beneficiaries or give more to one beneficiary over another unless they’ve been instructed to do so, nor can a trustee remove a beneficiary from the trust in most cases.
This fiduciary duty is good to keep in mind if you’re looking for an attorney or third party to manage your trust. Anyone you choose has a legal obligation to put the trust’s interests above their own, and doing otherwise could mean grounds for removal by the court.
Information a trustee needs
In order to properly manage a trust, a grantor should talk with their trustees to explain what’s in the trust and any specific instructions for its management.
A trustee should have access to any necessary financial documents, property deeds, retirement accounts, or life insurance policies. In particular, trustees need access to the trust document. This is a legal document detailing a trust’s location, grantor, trustee, and beneficiaries. It will also include any specific instructions that the trustee must follow.
A certificate of trust, which is a shortened version of the trust agreement, will also be handy when the trustee needs to transfer assets in or out of the trust.
What does a trustee do?
Trustees have many responsibilities ranging from documenting the day-to-day finances to distributing money and assets to beneficiaries. Trustees are even paid a fee for their duties, which include:
Documenting a trust’s finances
A primary responsibility of a trustee is to manage a trust’s finances. That includes keeping detailed records of all income, expenses, and other transactions for a trust. Trustees may even have give a trust accounting to the probate court if asked by a beneficiary. If a trust earns income, the trustee has to file income tax returns (Form 1041). When the assets of a trust include real estate, trustees need to ensure the trust pays property taxes. In some cases, a trust is designated to pay for particular costs, such as the funeral expenses for a grantor.
If a trustee ever needs the help of a professional, like a tax accountant, to complete their duties, they should keep records of all bills and fees.
→ Learn about how trusts are taxed
Handling investments on the trust's behalf
It is a trustee’s duty to manage any investments in a way that aligns with the objectives of the grantor and the trust. Ideally a trustee has spoken with the grantor to discuss investment objectives, but the trust document should also lay out any specific requirements. In lieu of specific instructions, the trustee should maintain a diverse portfolio to help minimize risk, although the trustee may need to use money in the trust to pay for its financial obligations.
→ Related article: Can a trustee sell trust property?
Again, the trustee should maintain financial records for all investments. That includes trades and management fees. If the trustee works with a financial advisor or financial planner for management help, they should track the costs of all services.
Distributing trust assets to beneficiaries
As a trustee, you'll have to oversee trust administration and the distribution of money and assets to beneficiaries. Each trust will have certain conditions that, when met, trigger the distribution of some or all assets to beneficiaries. In many cases this happens when the grantor dies. However, beneficiaries may receive assets before the grantor’s death as part of a trust fund.
In some cases, the trust beneficiaries won’t receive assets for years, such as when a beneficiary is a minor. In that case, the trustee must continue to act as a custodian of the trust.
As for how the trustee must handle their responsibilities, they have to act according to the wishes of the grantor and the instructions in the trust document, and not necessarily the beneficiary's wishes. If these conflict, trustees should follow the trust document.
Can a trustee get help managing a trust?
Trustees have the right to get the help they need to properly manage a trust. This could include working with a tax accountant, financial planner, estate lawyer. The lawyer or firm that created the trust document is a great resource if the trustee has questions about how to manage the trust.
Professional help can be especially useful if a trustee has to act as a custodian for years until a trust beneficiary reaches the legal age to receive funds, or they are administering a special type of trust, like when the trust beneficiary has special needs or is using the trust to qualify for Medicaid.
If a trustee does get professional help, they are still responsible for ensuring trust is managed according to the trust document.
