A trustee is an entity that is responsible for an asset or group of assets, referred to as a trust. A trustee can be an individual, a group of individuals, or an organization. The trustee will hold the legal title to the trust’s assets until the time comes to transfer the assets to the final recipient known as the beneficiary.
A trust is formed when an individual who owns the assets to be placed in the trust, known as the grantor, gives over the title of those assets to a third party, known as the trustee. Some trusts, such as living trusts, allow the grantor and trustee to be the same person. In either case, when the grantor passes away or some other circumstance comes to pass, the assets in the trust will pass from the temporary care of the trustee to the beneficiary.
A trustee can have a variety of responsibilities and tasks associated with managing various types of trusts. For example, a bankruptcy trustee is required to ensure that a debtor’s trust is settled with the bankruptcy court in accordance with the chapter of bankruptcy while a charitable trustee may be required to provide oversight for a charity’s operations and finances. At a minimum, all trustees must act with fiduciary responsibility. This requires the trustee to act as a reasonable person would if they were entrusted to manage and grow the assets.
Trusts are an oft-used way to protect assets, ensure proper distribution, and avoid estate tax.
Trustees are a vital part of making sure that system functions effectively. This responsibility comes with a certain amount of trust and a significant number of rules.
Trustees are made privy to financial information that may otherwise remain confidential. For example, in order to properly execute their duties, the trustee will need ready access to the full trust document and all of its provisions. This may involving checking over certain vital documents and knowing the locations and statuses of both assets and policies. Example of some of the potentially confidential materials a trustee is going to need access to include:
These documents may be held as private to the grantor, but the trustee will need access to them in order to ensure that the titles and beneficiary designations are being directed to the trust.
The trustee will also need to know all other trustees as well as any successor trustees who may become active after the death of the grantor or other trustee. A clear hierarchy will need to be established in any trust with multiple trustees to ensure that the proper chain of custody of assets is maintained.
The trustee themselves will also need to hold themselves responsible for a number of rules and tasks. Since the trustee is only holding the title to these assets temporarily, they may not treat the assets as their own. Additionally, unless the trust directly contradicts a rule, they are bound to a number of conditions regarding how the assets may be held and who they may be distributed to.
The trustee is absolutely forbidden to mix any trust assets with personal assets. The trustee must have separate accounts and investment portfolios for the trust that cannot comingle with their personal accounts. Similarly, unless the trust states otherwise, trustees cannot use any trust assets for their own benefit. This is also helpful to the trustee as it keeps the trustee from being taxed for the assets in the trust.
Trustees are also held to strict code of conduct. Trustees must invest the assets of the trust in a very conservative way, earning reasonable returns with the absolute minimum amount of risk. The trustee must also keep meticulous records of transactions, filed tax returns on the trust’s behalf, and reporting to the beneficiaries at intervals determined by the trust. Finally, all beneficiaries must be treated equally by the trustee with no favoritism shown.
If you are looking to establish a trust to preserve your assets, you will need a trusts & estates attorney to secure matters including the selection and limitation of trustees. An experienced trusts & estates attorney can form a trust that not only preserves your assets, but helps them to grow for your beneficiaries.
Your trusts & estates attorney can consult with you about the assets entering the trust, the purpose of the trust, and the intended beneficiaries in order to craft a legally sound and financially stable trust overseen by a trust who is expertly bound to carry out your will.