A trustee is a party who has a fiduciary obligation to any property held by the trust. While the trust holds the legal title to all property and assets within it, the trustee is responsible for following the instructions left in the trust documents, including ensuring the best interests of the beneficiaries are considered.
The role of the trustee is a complex one – and one that comes with numerous responsibilities. Trustees have a duty to serve the trust and the trust’s beneficiaries, and failure to do so could result in potential liability lawsuits.
It is important to understand the role, powers, and duties of a trustee whether you are considering serving as one or you are appointing one for your trust.
Exploring the Primary Role of the Trustee
A trustee takes on numerous tasks, and once named, they will be in charge of the trust’s assets and ensure that beneficiaries receive their inheritances. Due to the delicate nature of this position, you should be cautious if you are taking on the role or appointing someone. Before picking a trustee, it is important to understand the role of the trustee and the character of the person who fills that role.
There are three primary tasks that a trustee will do, including:
- Making all investment decisions on behalf of the trust using trust assets;
- Distributing assets from the trust to beneficiaries; and
- Handling all administrative duties while administering the trust.
As you can see, the list of primary duties within this role are not something you should give to just anyone. The party named as the trustee will have full control over the trust and all associated assets. That kind of power requires a person with good judgment, intelligence, and trustworthiness.
What Are the Duties of a Trustee?
Once you appoint a trustee, their primary duty is to serve the needs of the trust beneficiaries. Some essential duties can include:
- Remaining impartial while administering the trust. A person cannot let their emotions affect their judgment in this position. The trustee must remain impartial while administering the trust. Even if they dislike a beneficiary, they must follow all trust rules and guidelines while administering the trust. This means putting all feelings, beliefs, and emotions to the side while they fulfill their duties.
- Being prudent and acting as quickly as possible. A trustee cannot purposely delay administering the trust. They must perform their duties within a reasonable amount of time, including any distributions that are on a specific schedule. Likewise, they must be prudent with their investment decisions to ensure that the trust assets are protected and invested wisely.
- Preserving and protecting trust assets until the trust is distributed. Until the trust is fully distributed, it is the duty of the trustee to preserve and protect any assets held by the trust.
- Reporting and keeping accurate records. Another duty of the trustee is to keep records of all trust activities. This includes recording any investments or distributions, and depending on the trust document, the trustee may be required to provide activity reports to all named beneficiaries every so often. A beneficiary also has the right to request an activity report, and the trustee must supply that report to the beneficiary within a reasonable amount of time.
- Maintaining the productivity of the trust. A trust is meant to grow and stay productive. Therefore, the trustee has a duty to invest assets and make them grow or work for the trust to benefit the beneficiaries later on. They must make sound investment decisions, manage all existing investments, and make changes as necessary to keep the trust productive. If a trustee were to allow assets to sit without any investments, the trust would not be productive.
- Following all investment expectations. While a trustee is expected to keep the trust productive, their investment decisions are based on numerous factors. The trustee must consider the current economic conditions and any possible inflation or deflation effects on every investment decision they make. They also must consider any tax consequences, when applicable. Likewise, before investing trust assets, a trustee must consider the return on the investment before doing so. Lastly, the trustee must make sure that all needs for liquidity are addressed as well so that the trust has liquid assets when needed.
What Powers Does a Trustee Hold?
A trustee has considerable power over the trust assets. The trustee may take actions on behalf of the trust. That means they have the power to invest and remove investments as they see fit. They still must abide by any state laws or relevant common laws while handling assets in that trust.
A trustee’s power also relates to their authority over three primary areas. These three areas include administration, investment, and distribution. The trustee has the power to influence all of these areas. If a trustee makes a poor investment decision, for example, it will directly impact the payout and distribution area of their role.
Choosing a Trustee Wisely
Understanding the role, powers within the role, and duties of the trustee can help you better decide who to name for this very critical role. It can also help if you are considering taking the position of a trustee. In some cases, a trust requires daily interaction and work and it can be very time consuming for the party in the role.
You want a person who is diligent and trustworthy, especially when you consider all of the power they hold over a family’s legacy.
Create Your Trust Documents with a Local Estate Planning Firm
If you are ready to create a trust for your family and protect your assets, you will want to speak with a local estate planning law firm. An attorney will review your current assets and help you determine whether or not a trust is right for you.
While creating the trust, your attorney will also draft the related trust documents that help protect beneficiaries from abuse by the trustee. Your attorney can also advise you on picking the most suitable candidate for your trustee position.
To get started, contact the Law Office of Andrew M. Lamkin, P.C., today. We offer free, no-obligation consultations, and we can discuss your options for a trust as well as help you begin creating a trust when you are ready.