Whether you are reviewing your existing trust or creating a new trust, you should understand the important role that a trustee plays not only in handling trust matters but also in providing for and protecting your loved ones.
What is a trust?
A trust is an agreement between an owner of accounts and property (trustmaker) and another person (trustee) who agrees to manage the accounts and property on behalf of a third party (beneficiary). In most situations, there is a written document, called a trust agreement, that lays out the specific instructions or rules that govern the trust relationship.
What is a trustee?
A trustee is a trusted decision maker who is tasked with handling all matters that relate to your trust. Depending on the type of trust, you could be the trustee, with a successor to act as trustee only when you are unable to manage the trust, or you could select a trustee to act immediately.
What types of trustees are there?
When creating an estate plan, there are several types of trustees to consider. An initial trustee is the decision maker who immediately starts managing the trust’s accounts and property. You may choose to be the initial trustee if you create a revocable living trust. However, for some types of irrevocable trusts, you will need to select someone else to be the initial trustee.
The successor trustee is the next in line to manage the trust. This person may need to act because the initial trustee becomes incapacitated, dies, or steps down from their role.
You could choose to have one trustee handle the entire trust. You could also choose to name a separate trustee for any subtrusts that you later create. For example, you may name your children as the trustees for the subtrusts that are created for their benefit at your death. In this instance, there may be several trustees acting once the subtrusts are created. However, they will only be responsible for their separate trust and will have no control over other subtrusts that have their trustees.
What does a trustee do?
Being a trustee involves many different important tasks, including the following:
- Managing accounts and property owned by the trust or subtrust. Although the trust owns your accounts and property, a person needs to carry out most transactions. If the trust owns an investment account, the trustee must watch the investments and request any adjustments that may be needed to ensure the best outcome for the trust and its beneficiaries.
- Keeping the trust beneficiaries informed about the trust. Although the trustee decides how trust accounts and property are used, they do so on behalf and in the best interests of the trust beneficiaries. A trustee is required to periodically inform the trust beneficiaries about the status of the trust—what the trust owns, how much the trust is worth, what income the trust has received, and what expenses the trust has paid.
- Acting as a point person for trust matters. If beneficiaries have questions about the trust, the trustee is usually best suited to answer them. The trustee is also in charge of filing tax returns and participating in any lawsuits involving the trust.
What should you look for when selecting a trustee?
Although the choice of trustee is a very serious matter, you have several options available to you depending on your circumstances and what matters most to you.
- You or Your Spouse. If you have a revocable living trust, you can be your own trustee. If you are married, your spouse can be a trustee with you. If either of you becomes incapacitated or dies, the other can continue to handle your financial affairs without interruption. Most married couples who own accounts and property together, especially those who have been married for some time, are usually co-trustees.
- Family members. It is common for clients to select family members (spouse, child, parent, sibling, etc.) to be their trustees. Family members likely have an intimate knowledge of your wishes and values, making trust administration easier if you want to leave decisions to your trustee’s discretion. If your trustee is also a beneficiary, they could choose not to accept any compensation for acting as trustee because they will already be receiving something as a beneficiary of your trust. However, allowing the beneficiary to be the trustee of your trust could jeopardize or limit protection of their inheritance.
- Close friends. Close friends likely understand your values and wishes, making any discretionary decisions easier; however, depending on your family dynamics, your close friends may not want to get involved in any conflicts that arise. Also, if they are not trust beneficiaries, they may want to be compensated for the work they do, which could leave some beneficiaries feeling disgruntled that your trustee is getting money from the trust (even though the trustee is legally entitled to it).
- Professional third party. If protecting your beneficiaries’ inheritances is important to you, you are elderly or declining in health with no nearby relatives, or your other candidates lack the time or ability to manage your trust, you may want to consider a professional trustee. Professional trustees have the experience, time, and resources to manage your trust and help you meet your investment goals. However, a professional will likely require higher compensation than a family member or close friend would receive.
What to Consider
- Honestly evaluate whether you are the best choice to be your own trustee. Someone else may do a better job than you, especially with regard to investing your money.
- Name a co-trustee now to allow the successor to familiarize themselves with your trust, your accounts and property, and your beneficiaries’ needs and personalities sooner. You can also evaluate whether the co-trustee is the right choice to manage the trust in your absence.
- Evaluate your trustee candidates carefully and realistically.
- If you are considering a professional or corporate trustee, talk to several. Compare their services, investment returns, and fees.
Have You Chosen the Right Trustee? We here at Music City Estate Law understand that you have an important decision ahead of you.
We are here to guide you through the decision-making process and answer any questions you may have along the way. Call us at (615)-628-7775 or schedule an appointment at https://musiccityestatelaw.com/ so we can help you check this item off your to-do list.
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