Every trust must have a trustee. When you create a trust, you allow the trustee to have certain rights and responsibilities regarding your property. In most circumstances, you will have lots of faith and confidence in your trustee because an unethical or irresponsible trustee can have detrimental effects on your trust and your beneficiaries.
Trustees have many responsibilities, so it is important to appoint a person that is willing to take on this role. Discuss the position with a potential trustee, and ensure that they are capable and receptive before incorporating the trust into your estate plan. When determining the right trustee is for you, it is helpful to consider the trustee’s required duties.
The Terms of the Trust
Every trust is different, which means the role of the trustee can vary widely from trust the trust. The specific terms of the trust will lay out exactly what the trustee should be doing regarding maintenance of the trust, distributing income, and making required reports.
The trustee is required to be a prudent investor when it comes to trust assets. If part of the trustee’s role involves selecting investments, he or she must not engage in overly risky investment strategies. Speculation has no place in most trusts. Instead, the trustee must act as a prudent investor would. This duty is important because some trustees take the view that they can engage in riskier investments because they are not endangering their own money.
The trustee has specific obligations that it must meet because it is in a “fiduciary” role. A fiduciary is entrusted with power over property for the benefit of another person or entity. As such, a trustee cannot use trust assets for his or her own benefit unless it is expressly permitted by the trust document. In addition, the trust assets must be separated from the trustee’s personal assets. Trustees are held to extremely high standards when it comes to integrity and ethics regarding the trust assets.
Some trusts are designed to use the trustee’s rational decision-making abilities to make distributions. For example, some trustees can decide whether to make a distribution to a beneficiary or how much a distribution should be based on the recipient’s current financial needs. They have an obligation in that type of situation to reasonably evaluate the beneficiaries’ needs in light of the size of the trust and interest in maintaining the trust for the future.
Taxes and Accounting
The trustee must keep a watchful eye over income and expenses of the trust. Everything must be accounted for and reported to the beneficiaries regularly (often annually). Trustees are also responsible for taxes and fees for services. Some trusts need to file their own annual tax return and pay taxes. The trustee must also deal with fees for professionals such as investment advisers, attorneys, or other professionals. The trustee also occasionally takes a fee for his or her services.
Choosing the right trustee is extremely important for the maintenance of your trust. As a trustee, you may need some help dealing with your own responsibilities related to the trust. At J.S. Burton, our team can help with either need. Call today for more information.