How to Choose and Prepare for the Role of a Trustee

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What Is a Trustee?

A trustee is an individual or organization responsible for managing a trust fund on behalf of its beneficiaries. Trusts are crucial in estate planning, allowing assets to be transferred from one generation to the next. Revocable living trusts facilitate this transfer, while irrevocable living trusts can protect assets from creditors.

Trustees act as custodians, overseeing and distributing the trust’s assets. Before selecting a trustee or agreeing to become one, it’s essential to understand the responsibilities and skills required.

Responsibilities of a Trustee

Trustees have several key responsibilities, which can vary based on the type of trust and its terms. Core duties include:

• Acting as a fiduciary: Trustees must always act in the financial best interest of the beneficiaries.
• Managing money carefully: Trustees must ensure the trust’s assets are invested safely and preserved.
• Keeping trust funds separate: Trustees must not mix trust funds with personal funds.
• Maintaining good records: Accurate records of income, expenses, investment returns, tax filings, and more must be kept.
• Filing and paying taxes: Trustees are responsible for the trust’s tax filings and payments.
• Managing assets and paying bills: Trustees may oversee financial or legal advisors, manage bank accounts, collect rent, and pay bills.
• Distributing assets: Trustees handle the periodic and final distribution of assets as outlined in the trust documents.
• Communicating with beneficiaries: Trustees keep beneficiaries informed about changes or activities and may answer questions about asset allocation or distribution.

How to Choose a Trustee

If you’re creating a revocable living trust, you can choose yourself as the trustee. For other trustees or successor trustees, you can select anyone 18 or older, including third-party organizations or advisors. Common choices include:

• Your spouse or partner: They can serve as the primary trustee or co-trustee.
• Your adult children: One or more of your adult children can act as trustees or successor trustees.
• Another family member or close friend: For example, a sibling might serve as a successor trustee if you become incapacitated.
• A trusted third party: Attorneys, trust companies, or bank trust departments can act as trustees, typically for a fee.
• Co-trustees: You can appoint multiple trustees to manage the trust together.

If you don’t name a successor trustee, a court may appoint one if you die or are unable to manage your trust.

Considerations Before Becoming a Trustee

Before agreeing to serve as a trustee, consider the commitment and whether you have the necessary skills and time. Key considerations include:

1. Understand Your Responsibilities: Review trust documents and discuss expectations with the grantor(s).
2. Consider Your Skills: Financial and administrative skills are crucial for managing a trust effectively.
3. Be Honest About Time: Trust administration requires significant time and focus.
4. Assess Your Comfort Level: Trustees may need to handle difficult situations objectively and communicate effectively.

The Bottom Line

Choosing the right trustee is vital for ensuring your trust is executed according to plan. If you’re asked to serve as a trustee, carefully consider the responsibilities and whether you’re prepared for the challenge. Trustees play a pivotal role in managing and distributing trust assets, making it essential to select someone who can act in the best interests of the beneficiaries.

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