What Is a Trustee?
Duties and Types of Trustees
Trustees are people who take care of other people’s assets for various reasons. You might need a trustee to provide for beneficiaries, for investments, or for charitable giving. Although each type of trustee has specific duties based on the type of trust, they all have general duties as prescribed by law.
What Is a Trustee?
Generally speaking, a trustee is someone who holds and administers property rights for the benefit of another person. The latter gives a trustee these property rights by signing a legal title. You might say a trustee is a stand-in for a person and has specific legal authority to act on the latter’s behalf.
Property is something of value that someone has a legal right to own and use such as money, buildings, investments, and vehicles. Business assets such as intellectual property (including copyrights and patents) are also considered property.
An estate is the total property—real property (land and buildings) and personal property (everything else including cars and bank accounts)—owned by an individual before it is distributed through a trust or a will upon their death.
Trustees must follow state laws and regulations for trusts. To find your state’s trust law code, ask an attorney or search for “trust law [name of state].”
Trustees vs. Executors and Trusts Within Wills
An executor is a type of trustee who is designated by someone before their death to administer the latter’s will and estate and manage the distribution of their property after their passing. An executor, also called a personal representative in some states, can be an individual, a bank, or a trust company.
Trustees may also act on wills if there is a trust within the will. After the executor completes the administration period (not including the trust), the trustee of the trust-within-the-will administers the trust.
Your trustee for your trust and the executor of your will can be the same person or two different individuals, depending on your wishes.
Types of Trustees
A trust is a legal document set up by an individual to protect their assets and, after their death, to protect their beneficiaries (those designated to receive assets).
A critical part of setting up a trust is selecting a trustee. You can select a trustee for estate planning, tax planning, medical planning, and charitable giving, and the trustee can manage and invest property in the trust both during the person’s lifetime and after their death.
Some specific types of trustees include:
- Investment trustees: These trustees make day-to-day decisions on investments in a personal portfolio or business investment account.
- Successor trustees: These trustees take over when the trust creator dies. In this case, the trust creator is the first trustee and the successor trustee is the second.
- Bankruptcy trustees: These are special trustees appointed by the Department of Justice’s U.S. Trustee who administer and oversee an individual or business bankruptcy process.
- Charitable trustees: These trustees manage the assets in a charitable trust and distribute them to designated charities according to the trust owner’s wishes.
Duties of a Trustee
A trustee stands in a fiduciary capacity for the designator (the person who gives the authority to the trustee). The fiduciary is in a position of trust in representing the will maker or the person setting up a trust or estate.
Duties of a fiduciary include:
- Accounting for all funds in the person’s estate or trust
- Loyalty to the person’s wishes (no conflict of interest)
- Obedience to all lawful orders of the person
Other duties of a trustee include:
- Acting in accordance with the trust document, as long as the terms are legal
- Avoiding conflicts of interest and remaining impartial with beneficiaries, putting the document first
- Keeping trust property and assets separate from assets owned by anyone else
- Using reasonable care and skill in administering the trust and investing trust property
- Diversifying investments, unless it wouldn’t be prudent to do so
- Keeping detailed records
- Giving beneficiaries and federal and state agencies periodic reports.
Tax Duties of Trustees
Taxes must be paid on income generated from trust assets during the lifetime of the trust, and can include both income taxes and excise taxes. The IRS requires estates and trusts to file an income tax return on Form 1041 each year to report income and capital gains and losses.
Can Anyone Be a Trustee?
When someone considers setting up a trust, it’s common to think of saving money by getting someone you know to be a trustee.
Administering a trust requires a legal specialist to navigate the tax, legal, and fiduciary pitfalls. It’s best to find an attorney who specializes in the kind of trust you want to put into place to help you set it up.
Because of the laws and regulations for trusts, appointing a professional trustee—such as a corporate trustee (for-profit business) or a bank trust department—to administer your trust may be a more viable solution.
- Trustees manage someone’s assets for a specific purpose.
- Executors are special kinds of trustees who manage and distribute a person’s property and assets after their death.
- Trustees can manage many types of trusts, including charitable trusts, investment trusts, and bankruptcy processes.
- Trustees have fiduciary duties to manage the trust fairly and according to law.