What Is a Trustee? Definition, Role, and Duties

What Is a Trustee?

A trustee is a person or firm that holds and administers property or assets for the benefit of a third party. A trustee may be appointed for various purposes, such as in the case of bankruptcy, certain types of retirement plans or pensions, or to manage assets for someone.

Trustees are required to make decisions in the beneficiary's best interests and have a fiduciary responsibility to them, meaning they act in the best interests of the beneficiaries to manage their assets.

How a Trustee Works

A trustee is any person or organization that holds the legal title of an asset or group of assets for another person, called the grantor. A trustee is granted this legal title through a trust in which the they hold title to the assets held in trust for the benefit of others. The people or entities who benefit from the trust are called beneficiaries.

A trust is a legal entity in which a person or party who owns assets (also called a trustor) gives another party (the trustee) title to those assets or property for the benefit of a third party. For example, a trust might be created to provide legal protection for the trustor's assets and ensure they are appropriately distributed. The trustee is charged with ensuring that the trustor's wishes are fulfilled.

A trustee is thus responsible for properly managing all property and other assets placed in the trust for the beneficiaries. A trustee's specific duties are unique to the trust agreement and are dictated by the type of assets held in the trust. For instance, if a trust holds various rental properties intended to be used for income, it will be the trustee's duty to ensure those those properties are managed, maintained, occupied, and generating income.

Trustees are also required to financially manage and oversee accounts within a trust when it is made up of other investments, such as equities in a brokerage account.

Responsibilities of a Trustee

All trustees have general guidelines and responsibilities, regardless of the specifics in the trust agreement. Trustees generally assume the following duties:

• Act as a fiduciary: The role of the trustee is to ensure the trust is administered in accordance with the grantor's wishes.
• Ensure the safety of the assets: Accounting for the funds and assets within the trust and understanding who the beneficiaries are and what their rights are. Trustees also ensure trust assets are kept separate from other assets.
• Administer the trust: Keeping records of all transactions and distributing assets as required
• File reports: Reporting to state and federal regulators as required and keeping the beneficiaries updated
• Make decisions: A trustee will be required to make decisions about the assets from time to time as circumstances change. The decisions must align with the grantor's wishes.
• Invest: Any investable assets must be invested, allocated, or adjusted as needed in accordance with the wishes of the grantor.
• Communicate with beneficiaries: Trustees should initiate communication with the beneficiaries, not wait for contact. Emails, phone calls, or other methods can be used to check in. Beneficiaries should clearly understand the grantor's wishes for the trust, and the trustee should be prepared to answer questions.

Types of Trustees

A trustee can be someone you know, but it might be best to find someone with experience. They should understand the trust being set up and know what their responsibilities are. For example, if the trust includes growing assets for your family's future generations, you'd want to appoint someone who understands how to grow wealth.

There are generally three types of trustees:

• Individual: These trustees are friends or family members the grantor trusts to administer the funds assets.
• Independent: These are businesses not part of a financial institution specializing in trust fund management. You'll find investment advisors, accountants, and administrators at these private businesses. Many have names like XYZ Trust Company or ABC Wealth and Trust.
• Institutional: Many large financial institutions have trust fund professionals that administer, invest, and manage trusts for their clients.

Trustee vs. Executor

A trustee administers and manages a trust fund. An executor manages and administers the estate of someone who has died and left assets to heirs through a will. An individual can name one person for each role or could appoint one to perform both roles.

Like a trustee, an executor can be a trust company, a bank, or a trusted friend or family member. The executor must distribute assets in accordance with the will left by the deceased.

Who to Choose As a Trustee

Choosing a trustee might be one of the most challenging tasks when creating a trust. It's tough to know which person or entity you can trust to administer your assets the way you want them to. Here are some considerations for choosing a trustee:

• Wealth Management/Trust Company: A wealth management and trust company has finance professionals, attorneys, and accountants and will administer a trust to the letter. Your trust can be set up to pay any fees they may charge, but you'll be able to rest knowing your assets are in the hands of someone who will act in the trust's best interests.
• Friends or family: You can choose a trusted friend or family member, but you'll need to ensure they are up to the task of administering your trust. Additionally, they'll need an iron will to withstand the drama and resentment that can arise when a family member is in charge of large sums of money and won't give any out on demand. This person must also be willing and able to continue the task as long as the trust exists. Lastly, you'll need to consider and appoint an alternate in case something happens to the primary trustee. This ensures your trust is administered by someone you choose rather than having the courts choose for you.
• Trust Attorney/Lawyer: A trust attorney can also be an excellent choice. They'll be very familiar with trust laws in your state and be a reliable trustee. However, if one of your intentions as the grantor is to grow wealth within the trust, a lawyer may not be an investment professional or understand how to manage wealth.

The Bottom Line

A trustee is someone who has been granted a fiduciary responsibility to care for the assets placed in a trust. There are many reasons for placing assets into a trust, from ensuring you have income in your later years to growing wealth for your family and having it distributed as income after you pass.

All states have laws governing trusts and how they must be administered, so when choosing a trustee, it's essential for the person you choose to understand trusts and be up to the task. If you don't know someone capable of being a trustee, you can find wealth management companies, banks, trust companies, and attorneys specializing in administering trusts.