What Is a Trustee? – NerdWallet

A trustee is the person, bank or trust company in charge of handling the assets from a trust and transferring them to its beneficiaries. These assets might be transferred during the grantor’s (or trust creator’s) life or after their death, depending on the type of trust.

Trustees are expected to keep their own financial assets separate from those they manage within the trust. They’re also responsible for keeping detailed records of how they’re managing the trust assets that they can share with the grantor of the trust, the beneficiaries and potentially the state^[0]

.

The trustee has a fiduciary duty to fulfill the grantor’s wishes regarding the distribution of their assets to their beneficiaries after their death. A few ways they are expected to fulfill those wishes include^[0]

• Managing the trust assets while the grantor is alive (depending on the type of trust) and carrying out the intent of the trust when the grantor dies.

• Making decisions about the assets based on the best interests of the trust beneficiaries, including aligning investments with the overall trust objectives.

• Using and distributing trust assets as described in the trust.

• Avoiding conflicts of interest.

• Accounting for and reporting on decisions to stakeholders.

A grantor can help a trustee fulfill their duties by creating a well-thought-out trust that names all the parties involved and outlines how the grantor expects their trust to be executed. There are different types of trusts, but all versions should at least name the following:

• The grantor (or donor/settlor/trustor/trust maker): This person creates the trust and transfers their assets legally to the trustee.

• Beneficiaries: A list of the people, corporations or organizations that will receive the grantor’s assets.

• Trustees (and co-trustees/successors): The person or people authorized and trusted with executing the grantor’s wishes.

• Property: All of the property legally owned by the grantor and involved in the trust.

States have individual laws regarding what makes a trust legal and binding. Some states only require that the document be signed by the grantor in the presence of witnesses, while other states require notarization.

Whether you’re creating a trust for yourself or have been asked to serve as a trustee for one, make sure the document is legal by checking the laws in your state and consulting an estate planning lawyer.

There are a few factors to consider:

• The trustee’s qualifications. The person or company you designate as a trustee will be responsible for ensuring all of your assets are distributed as intended. They should be responsible, trustworthy and reliable, and you should feel confident in their ability to act in your and your beneficiaries’ best interest at all times. If you choose a bank or trust company to act as your trustee, look for one with extensive experience in managing trusts.

• The trustee’s relationship with other members of your estate. A trustee should be impartial and make decisions about distributing your assets according to their fiduciary responsibilities. As the grantor, you might consider naming a beneficiary as a trustee because you likely already know and trust them. But doing so might make it difficult for that person to fulfill their fiduciary responsibilities because whatever actions they take will directly affect their inheritance. And if you have only one beneficiary, that same person cannot also be the trustee.

Some types of trusts, such as revocable living trusts, allow a grantor to be the trustee for their own trust. Whether the grantor is their own trustee or picks someone else, it’s also important for them to name a successor and/or co-trustee in case something happens to the original trustee.

Different trust types do come with different rules for replacing or removing trustees:

• Revocable living trusts: The grantor of a revocable trust, which can be updated or terminated, can easily change their trustee, beneficiaries and assets at any time. They can also name themselves as the trustee, along with a co-trustee or successor trustee to take over after they die.

• Irrevocable trusts: While these trusts typically can’t be modified or revoked without agreement from the trust’s beneficiaries or by court order, they may allow the trustee to be replaced in some cases. To find out what types of changes you can make, you’ll have to read the document’s trust provisions.

If someone has asked you to be a trustee, ask yourself a few questions:

• Can you act impartially? If you are a beneficiary listed on the trust, that doesn’t necessarily mean you shouldn’t also be the trustee. Ask yourself whether you’re prepared to make decisions based on the overall goals of the trust — and for the good of additional beneficiaries — rather than just for yourself.

• Do you have the time? Depending on the size of the estate, becoming a trustee can take a lot of time. Consider whether you have the energy to devote to this additional responsibility before saying yes.

• Can you find the right resources? Trustees need to keep detailed records and make smart financial decisions. Failing to do so could affect their own finances or get them sued. If you’re not up for the challenge, do you feel confident you could find someone to help?

Trustees can and should get outside help when needed — and it’s wise to do so, especially when dealing with large and complicated estates. Usually, trusts will include language that allows trustees to use trust funds to pay for counsel or other administration costs.

A few professionals whom a trustee might decide to consult could include:

• An estate planning lawyer: Estate planning lawyers specialize in the estate planning process and can help the trustee with financial and personal issues related to the trust.

• A financial advisor: Working with a financial advisor might help the trustee get better investment results for the assets in the trust. A financial advisor who specializes in estate planning can also point out applicable state investor rules regarding trusts and estates.

• An accountant: Trustees are expected to keep proper documentation of the financial decisions they make regarding a trust. This includes providing an annual income tax statement to beneficiaries and filing an annual income tax return for the trust. If this paperwork isn’t handled properly, the trustee could be held personally responsible for any penalties and interest on penalties accrued by the trust. Working with an accountant who is skilled in estate planning can help avoid that.