If you have been made a trustee, first, take a moment to congratulate yourself. Being made a trustee means the person who entrusted you with the responsibility thought you were ethical and responsible.
Now that you’ve congratulated yourself, you may be wondering: “Now what? Just what does a trustee do?”
This short article strives to answer that question by explaining your basic role as a trustee.
What Is a Trustee?
As a trustee, you carry out the terms of the trust on behalf of the beneficiaries. For example, you may manage an investment portfolio that provides income, or you may oversee rental properties.
The terms of the trust are carried out in a document called the trust instrument, which you should consider as your road map. State and federal laws also will apply, so make sure you understand the laws governing the trust and your responsibilities.
What Will You Do?
In short, you will manage the trust to provide income for current and future beneficiaries. How you will do this will be spelled out in the trust instrument. But in all your actions, you must remember that you are considered the steward of the trust, and you have a fiduciary duty to the beneficiaries. That means you must put their best interests first and cannot use the trust for your personal gain.
As stated, the trust instrument will detail how you will manage the trust. It should include who will receive distributions, what they should receive, and any conditions on what they receive. As you follow the instructions, keep these points in mind:
- Investments: Your investment decisions should be prudent and take into account the best interests of both current and future beneficiaries. Avoid being speculative or exposing the assets to undue risk.
- Distributions: The trust may spell out specific terms of the distributions or leave the amount to your discretion. Regardless, you should remain impartial and treat beneficiaries equitably.
- Accounting: Keep records for every decision you make and every action you take. Your record-keeping should include the trust’s income, distributions, and expenses.
- Communication: It is your duty to keep beneficiaries informed about the trust. Plan for regular updates, and be responsive to beneficiaries when they reach out to you.
- Assistance: Trusts can be complicated. You may want a CPA’s tax assistance, an estate planning attorney’s legal expertise, or a financial planner’s investment management. Keep in mind, however, that you cannot delegate your discretionary decisions.
- Court instructions: If any instruction is unclear or you encounter problems with the beneficiaries, seek the court’s assistance. The judge’s instructions can give you guidance and minimize the risk of litigation.
Should You Accept?
You may find that being a trustee is a fine way to honor a loved one’s wishes. Or you may find it a burden that you don’t want to take on.
You may want to think twice about being a trustee in the case of:
- Problematic beneficiaries: If you don’t get along with one or more of the beneficiaries, you may find carrying out your duties a miserable process. If any of the beneficiaries is litigious, you may want to rethink your acceptance. If you end up on the wrong side of litigation, you may be forced to pay damages from your personal finances.
- Co-trustees: In the case of co-trustees, you will have to get their agreement on everything. They may also be absentee trustees, meaning you end up doing most of the work.
- Time constraints and trust complexity: Ask yourself if you have the time (and desire) to carry out your duties as a trustee.
The role of trustee brings with it significant responsibility. It is a long-term commitment that requires both integrity and diligence. You must remain mindful of your fiduciary duties to the beneficiaries and implement practices that protect the trust. Though the responsibility is large, you may find the experience gratifying as you help fulfill the wishes of someone important to you.