What is a Trustee?

Have you ever been asked to be a trustee?  Or maybe no one asked you, but you were listed in someone’s estate documents as a trustee.  You now had to figure out exactly, what is a trustee and what do they do.

A trustee is a person or company that holds and administers property for the benefit of a third party, the beneficiary.  Trustees are considered a fiduciary, meaning they have a legal responsibility to act and make decisions that are in the best interests of the beneficiary.

We hear the term Trustee most often in the context of estate planning where an individual or a couple set up a revocable trust while they are living.  The person or persons that set up a trust are called the Settlors.  Often the person who set up the trust, the Settlor, starts out as the named Trustee.  Trusts are usually created by a written document that is a contract between the Settlor and the Trustee, that the assets will be managed in a specified way and it designates who will benefit from those assets.  It becomes your rule book to the distribution of your estate.  You name who you want to be in charge of managing and wrapping up your estate.

Under a revocable trust, the Settlor has full control of the trust assets and may change or revoke the trust at any time.  If the Settlor becomes incapacitated during their lifetime, the named successor Trustee may need to step in and act as the Trustee.  Normally the trust assets are used and managed for the benefit of the Settlor during the Settlor’s lifetime.  However, the use and purpose of the trust will be stated in the trust document along with the powers and responsibilities of the Trustee.  Trust assets must be invested in a prudent (conservative) manner, in a way that will result in reasonable growth with minimum risk.  The Trustee is responsible for keeping accurate records, filing tax returns and reporting to the beneficiaries as the trust requires.

If at any point the Settlor recovers, they could then take back the Trustee role.  It usually is an easy process to return control to the Settlor and no court involvement is required.

If however, the Settlor passed away, the Trustee would have essentially the same duties as an executor named in a will.  Generally the probate court would not be involved in the estate settlement and the Trustee is instead responsible to ensure everything is done correctly and timely to wrap up your estate.

The Trustee may choose to hire an attorney, accountant or other fiduciaries to assist in the estate settlement process, which may include things like:

Reviewing the trust document terms, meeting with an attorney to talk through next steps, creating a preliminary list of the assets and their estimated values, obtaining a trust tax identification number if needed and certified death certificates.  The Trustee should collect all death benefits and liquidate assets, pay final expenses and dispose of household goods and personal effects, along with tracking final bills and expenses paid.  Finally, distributing the remaining assets to the beneficiaries.

Acting as a Trustee can be time consuming.  By law, a Trustee may charge a reasonable fee for their work.  However, the Trustee will then also have to report that fee as income on their personal tax return.

The role of a Trustee is very important.  You should choose the individual or corporate entity very carefully.  You want the Trustee to carry-out your final wishes and wrap up your estate in the most reasonable, inexpensive means possible.

Please send me an email at rene@breenandperson.com with any topic suggestions or requests you may have.  Although we cannot give you legal advice through the column, we can provide some general information that may be helpful for you to know.  Our purpose is to educate and we hope that you can take something new away from this column each time you read it.