A trustee is a party responsible for the management, investment, and distribution of the property or assets within a trust. This will involve the oversight of trust administration, accounting, taxes, serving beneficiaries, and so on – in a manner that is impartial and transparent.
It is encouraged to all our clients to select a professional entity to serve as the fiduciary of their trust, such as a financial advisor or accountant, due to the often-complex nature of trust administration. However, it is not uncommon for people to name a family member, typically their adult children or close family friend to serve in this role during a time of incapacity or death.
Non-professional trustees oftentimes do not fully understand their responsibilities as a trustee. Please read on for a brief overview of a trustee’s duties.
The Primary Duties of a Trustee
As a trustee, you will be held to a high standard of conduct and must pay careful attention to investments, disbursements, and any other matters pertaining to the trust, it’s beneficiaries, and any remaindermen thereafter. A trustee has a duty to know and understand the terms prescribed in the trust and adhere to those terms efficiently.
Management of Trust Assets
A trustee will be responsible for keeping track of financial accounts and the asset administration of a trust. All income to, distribution by, and expenses of the trust will be managed by the trustee to keep accurate records of all transactions and potentially reported to beneficiaries annually.
Accounting responsibilities also include the preparation and filing of income tax returns for the trust and paying taxes from the trust. Adherence to all pertinent state and federal laws surrounding trust administration requires detailed and accurate record-keeping of any and all trust-related transactions.
Investment of Trust Assets
Another responsibility of a trustee may involve the investment of trust assets to grow the principal of the trust or to earn income based on the goals of beneficiaries or intentions identified within the trust. Investments made should take into account the interests of current or future beneficiaries and must be done judiciously to avoid speculative or otherwise risky investing.
Beyond balancing the varying interests of beneficiaries, a trustee must know and anticipate the future financial needs of a beneficiary. This may include ongoing education, the purchase of a home, and retirement income. Only once trust directives and beneficiary needs are understood can an investment plan be created.
Distribution of Trust Assets
When it comes to the distribution of assets among beneficiaries, a trustee must have a comprehensive understanding of the intentions and instructions laid out in the trust. All distributions of income or property should be made promptly and responsibly.
When a trustee has the discretion on whether or not to make a distribution, they must carefully evaluate the current and future needs of the said beneficiary as well as consider the needs of other beneficiaries (if any). Often the size or value of assets within a trust is considered when making distribution decisions. An important privilege of a trustee (as specified in the trust) is the ability to deny a distribution request or to enforce limits of use on trust assets.
Reasonable Compensation
As a trustee, you would be entitled to reasonable fees for your service. Family members tend to not accept fees but that typically depends largely on the amount of work involved. It may not always be easy to determine what is reasonable. Financial institutions may charge a percentage of the assets managed or for the amount of time worked. Generally, what is considered reasonable is contingent on the work involved, the value of the trust, the expenses of administering the trust, and the professional experience of the named trustee.
No matter the case, it is recommended to seek the help of an experienced estate planning firm for guidance on “normal fees” considering all circumstances.
The Benefit of a Professional Estate Planning Attorney
A trustee holds a fiduciary duty regarding the beneficiaries of a trust. It is their obligation to administer trust assets in the sole interest of beneficiaries and must never place their own interest ahead of beneficiaries. As trustees could be held personally liable for disregarding their duties, it is critical to fully understand your responsibilities as a trustee before accepting the role.
Managing a trust is seldom straightforward and the benefits of hiring a specialized estate planning attorney must not be undervalued. The estate planning team at Bridge Law have the experience and understanding to provide you with comprehensive assistance whether you are a trustee, trustor, or beneficiary. Call or contact online one of our firms in Anaheim Hills, Los Angeles, or Union City today to learn how we can help.