When you establish a trust to hold and manage assets from your estate, that trust requires a trustee to assume fiduciary responsibilities. Estate holders may choose to set up a trust for many different reasons, but a trust document will establish the duties of a trustee, including who can be named trustee.
As you set up your trust, it is helpful to understand the role a trustee plays. A competent trustee can provide greater security and accountability for your assets if you’re no longer able to manage an estate yourself.
The specific responsibilities of a trustee can be complex and unique, but let’s take a high-level view of the potential benefits of appointing someone to manage, protect, and distribute the assets held in a trust.
When Are Trustees Necessary?
Trustees are required when assets are moved out of an estate and into a fiduciary relationship wherein the trustor (i.e., the person moving money into the trust) gives the trustee (i.e., the person administering the trust) the right to hold and distribute assets on behalf of beneficiaries. They can also be essential in facilitating additional controls or protections provided by a trust.
Trusts and trustees go hand in hand. Regardless of your reasons for establishing a trust, a trustee will be required.
The Purpose of Establishing a Trust
A trust provides a long-term management structure for assets. Unlike an executor tasked with administering an estate, a trustee assumes management of assets only after they’ve been moved from an estate into the trust. The trustee then manages these assets for years or even decades. Although the executor of a will and the trustee of a trust may be the same person, a trustee’s role picks up after the executor has administered the estate.
A testamentary trust, which is created upon the decedent’s passing, becomes necessary because the wishes of the decedent cannot be carried out through the decedent’s will. One of the key differences between wills and trusts is that, with wills, an executor is assigned to organize and carry out affairs after the estate owner’s death. This can include the sale of investments and property and the distribution of assets to named beneficiaries. The responsibilities of an executor are focused on the administration of an estate after the decedent’s passing, including the guidance of the will.
By contrast, trusts are created in part to avoid the probate process that wills are required to undergo. Wills become public record through the probate process, but trusts can be used to protect assets from public record, which offers privacy benefits. Trusts also provide benefits such as asset protection, tax-efficient transfers of assets to a spouse or subsequent generations, and administration of assets.
What Are the Duties of a Trustee?
Because trustees are tasked with holding and administering the trust, they have a fiduciary duty to make decisions in the best interests of the beneficiary.
Trustees are not necessarily beneficiaries of the trust. For this reason, they should manage the trust separately from their personal interests. They are expected to responsibly manage the investments with the goal of preserving the trust’s value while limiting risk.
Trustees are also expected to keep detailed records related to such things as the sale of property, taxes, and expenses incurred through the management of the trust. These records can be useful because trustees are often expected to create and deliver reports to beneficiaries for the purposes of transparency and accountability, as well as file income tax returns for the trust.
Other responsibilities of a trustee may be outlined in the will trust established by the estate owner.
Do You Have to Pay a Trustee?
Yes. The role of a trustee requires ongoing work, so this appointed position is generally entitled to compensation—even though, in some cases, a family member might feel uncomfortable charging a fee.
However, trustees are barred from personally profiting from the trust itself. Instead, compensation should be in line with the current market standard for that role and should be fixed rather than tied to the performance of the trust itself.
The probate code in each state will outline the rules and restrictions regarding the compensation of trustees, including how this compensation is provided. California Probate Code, for example, prohibits trustees from engaging in any asset management or transaction for their own personal enrichment or to the detriment of the beneficiary.
Place Your Estate in Trustworthy Hands
If a trust is the right choice to manage your estate, it’s worth taking time to consider the individuals or organizations you would trust to assume the role of trustee for your estate.
Your appointed trustee should be both trustworthy and experienced in managing the assets held in a trust. Looking for a trustee who meets these requirements? Prudent works with many professional trustees who can help. Contact us today, and we can help point you in the right direction.