If you’re in the process of reviewing an existing trust or creating a new one, it’s crucial to recognize the significant role that a trustee plays. They are responsible not only for managing trust-related affairs but also for safeguarding and providing for your loved ones.

What is a trust?

A trust refers to a legal agreement between the owner of assets and another party (the trustee), who assumes the responsibility of managing these assets on behalf of a third party (the beneficiary). The terms and conditions of this agreement are typically outlined in a written document known as the trust agreement.

What is the role of a trustee?

A trustee is a reliable individual who is appointed to oversee all aspects of the trust. Depending on the specific trust arrangement, you may initially serve as the trustee and designate someone else to take over when you become unable to manage the trust, or you may select a trustee to act on your behalf immediately. The trustee is responsible for making decisions related to the trust and ensuring that the assets are managed in accordance with the trust agreement.

What types of trustees are there?

When crafting an estate plan, it’s important to consider the various types of trustees that are available. The first type is the initial trustee, who is responsible for managing the trust’s assets and property right from the start. If you establish a revocable living trust, you may choose to serve as the initial trustee. However, in the case of certain irrevocable trusts, you will need to appoint someone else as the initial trustee.

The successor trustee is the next in line to take over the management of the trust. This individual may need to step in if the initial trustee becomes incapacitated, passes away, or resigns from their position.

You can opt to have a single trustee handle all aspects of the trust, or you may choose to appoint separate trustees for each subtrust that you create in the future. For instance, you might designate your children as the trustees for the subtrusts that are established for their benefit upon your death. In this case, multiple trustees will be involved in managing the subtrusts, but they will have no authority over the other subtrusts that have their own trustees.

What are the responsibilities of a trustee?

The role of a trustee is multifaceted and involves numerous essential tasks, including:

Managing the accounts and assets that are owned by the trust or any subtrusts. While the trust technically owns these assets, a trustee is typically responsible for carrying out transactions related to them. For example, if the trust owns an investment account, the trustee must monitor the investments and make any necessary adjustments to ensure that the trust and its beneficiaries receive the best possible outcomes.
Keeping the beneficiaries of the trust informed about its status. Even though the trustee has the final say on how trust accounts and assets are utilized, they do so in the best interests of the beneficiaries. Thus, it’s crucial for the trustee to regularly update the beneficiaries about the trust’s current status, including its assets, income, expenses, and overall value.
Serving as the primary point of contact for trust-related matters. If beneficiaries have any questions or concerns regarding the trust, the trustee is typically the best person to provide answers. Additionally, the trustee is responsible for filing tax returns and participating in any legal proceedings involving the trust.

What should you look for when selecting a trustee?

When selecting a trustee, financial expertise and legal or tax background are beneficial but not required. Here are some essential qualities to consider:

Ability to seek assistance when needed. A trustee need not be an expert in all aspects of trust administration. They can obtain help from professionals such as financial advisors, tax preparers, and attorneys paid for by the trust.
Attention to detail. Trust administration involves following specific legal procedures. The trustee is responsible for compiling a list of trust assets and keeping accurate records of income and expenses. Being too general or imprecise can result in conflicts with beneficiaries and possible legal action.
Organization skills. Trust administration can involve multiple beneficiaries, complex distributions, and diverse assets. In addition to managing the trust, the trustee must avoid confusing their personal affairs with those of the trust.
Effective communication. Although the trustee has decision-making authority, they must act in the best interests of the beneficiaries. Clear communication, timely information delivery, and availability to answer questions are vital. Trustees must also be able to work well with beneficiaries.
Adherence to rules. Federal and state laws and trust provisions must be followed. While some areas allow the trustee discretion, in other cases, specific actions are required. Non-compliance may result in legal consequences such as civil or criminal penalties.

Who can you choose to be your trustee?

When it comes to selecting a trustee, there are several options available to you, depending on your needs and preferences. These include:

Family members: Many clients choose to designate a family member, such as a spouse, child, parent, or sibling, as their trustee. This can be beneficial because the trustee likely has an understanding of your values and wishes. However, if the trustee is also a beneficiary, it could potentially create a conflict of interest. It’s also important to note that allowing a beneficiary to act as trustee may limit the protection of their inheritance.
Close friends: Another option is to select a close friend as your trustee. They may have a better understanding of your values and wishes than a professional third party. However, they may not have the expertise to efficiently manage the trust, and conflicts may arise if they are not a beneficiary and require compensation for their services.
Professional third party: If protecting your beneficiaries’ inheritance is a top priority, a professional trustee may be the best option. They have the necessary expertise to efficiently manage the trust, and their fee may be worth the additional protection they can provide. However, they will require compensation and may charge a higher fee than a family member or close friend acting as trustee.

We understand that you have an important decision ahead of you. Take control of your future today by contacting the Legacy Law Centers team for a complimentary consultation. We help Loudoun County families and their loved ones prepare for the future through sound legal planning. Give us a call at (571) 200-5559 to learn how we can help you.