Estate Planning is something everyone, not just the very wealthy, should do. Without a legal, defined plan in place, you’re leaving your entire legacy in the hands of the courts. Estate Plans come in many shapes and sizes, but if there’s one thing we know, it’s that the process is definitely not one-size-fits-all.
That’s why Trust & Will is dedicated to taking the confusion out of Estate Planning, with customized plans made to fit your needs. Whether you need a basic Will or a full-blown Trust with an appointed Trustee (or, both!), we’ve got you covered.
It’s easy to confuse the two concepts of Wills and Trusts, but they’re actually very different in intent. If you’re not sure what a Trust or a Trustee is, you’re in the right place. Keep reading to learn:
What is a Trustee?
A Trustee is a person who acts as a custodian for the assets held within a Trust. He or she is responsible for managing and administering the finances of a Trust per the instructions given. Often, the person who creates the Trust is the Trustee until they can no longer fill the role due to incapacitation or death. At that point, a Successor Trustee takes over. The responsibilities can include recording expenses and income, distributing funds to beneficiaries, filing taxes on any income the Trust makes and keeping record of other transactions that occur.
The simplest Trustee definition is: the named person who manages a Trust’s assets.
The most important aspect of the role of Trustee is ensuring one acts in the best interest of the Trust. When thinking about whom to appoint as Trustee, it’s important to find someone who will be able to put all personal goals aside and follow the instructions as the Trust dictates.
How to Choose the Right Trustee
Choosing the right Trustee can be a daunting experience. Particularly if you have children who your Trust will provide for, you definitely might feel the weight and pressure of “getting it right.”
But there are a few things you can assess to feel more confident in your decision. Almost anyone you trust, who is over the age of 18, can be your Trustee.
Friends/Family - This is a common route, but also comes with the potential for family drama and even resentment. However, if you have a friend or family member whom you trust, the peace of mind this option offers can be worth it. Someone close to you will have the obvious benefit of knowing and understanding your family dynamics. Be sure he or she is willing to take on the task.
Lawyer/Attorney - A good option if you don’t have a close family member or friend to assume the role. Or, if you simply can’t decide and are worried about hurt feelings or disagreements amongst your loved ones, appointing a non-partial third party like a lawyer can be a good solution. If you have a long-standing relationship with your attorney, another benefit is he or she will have insight to your family. Keep in mind, this may cost more, which could ultimately reduce the amount your beneficiaries will receive.
Trust Company - Hiring a Trust company can be a great solution for many reasons. Though you’ll pay a fee for the service, it can be well worth it, if you anticipate any contention amongst beneficiaries. A Trust company will be able to take a stern, matter-of-fact approach to your estate, saying no when necessary and safeguarding your legacy as they see fit per the discretion and guidance of the Trust. It’s important to note, however, if you choose this option, removing a Trust company can potentially be difficult.
What Powers Does a Trustee Have - Trustee Duties & Responsibilities
A Trustee has many roles, but the main purpose is to carry out Trust’s directions. The ultimate goal of any Trust is to protect your legacy. So when thinking about “what does a Trustee do" or "what is the role of a trustee", it’s easiest to remember there are many aspects to the role. Trustees will be required to do some or all of the following:
Act as a fiduciary: The role of fiduciary means one is held to a high standard in terms of protecting the investments and distribution of the Trust. Some even feel that a Trustee must pay more attention to the Trust than they do his or her own personal accounts.
Understand the terms of the Trust and ensure safety of assets: Assets within a Trust must remain safe, so a Trustee should understand the basic terms outlined in the Trust. He or she should know who all the beneficiaries are and have access to and review all the records to ensure they’re in order and accurate.
Invest assets when necessary: If the Trust dictates, a Trustee should invest assets with the intention of preserving them now and in the future.
Administer the Trust: Per the Trust direction, a Trustee would need to distribute and/or administer assets to any beneficiaries.
Make ongoing decisions: As needed, Trustees should be willing and able to make decisions about how and when beneficiaries receive payment, as well as decide on other provisions of the trust. Keep in mind that these decisions are with respect to discretionary powers given to a trustee. For example, Trust & Will’s Trust-Based Estate Plan requires the trustee to distribute all income earned to the beneficiaries. That's mandatory, so the trustee really doesn't get any say in it (or at least not much). But, our Trust also says the trustee may give additional distributions as needed. That's discretionary and the trustee has to determine if it's a legitimate need and then determine how much to distribute.
Keep track of records and prepare tax-related forms/filings: In addition to preparing and filing tax returns, Trustees also need to keep financial records and statements organized and filed.
Communicate with and answer beneficiaries' questions as needed: Communication can include things such as providing statements and account information and offering an overview of tax reports.
Answer questions: A big part of acting as Trustee entails finding out the answers to beneficiaries’ questions and then ensuring the information is disseminated appropriately and in a timely fashion.
A Trustee’s duties may also change over time. In most cases, when you create a Trust you are both the Trustee and the beneficiary, and you have more flexibility over what you can and cannot do. That makes sense because you’re responsible for your own self. If you are ever to become incapacitated, or upon your death, the person you name Successor Trustee then steps in.
What is the Role of a Trustee: Commonly Asked Questions
Even after the basic responsibilities of a Trustee are known and understood, there are often several questions that tend to come up. Knowing the answers to some of the following questions can help ease any stress and uncertainty a Trustee may feel as they take on their role.
Can a Trustee Be Personally Liable?
In general, yes, a Trustee can be held personally liable. He or she must make all decisions in the best interest of the Trust and on behalf of the beneficiaries’ benefits. Trustees can protect themselves by keeping accurate, detailed records of the financial transactions and distributions. And the single best thing a Trustee can do is really have a solid grasp on and understanding of the Trust’s instructions.
What is the Difference Between Beneficiary and Trustee?
The difference between a beneficiary and a Trustee is simple. A beneficiary benefits from the Trust, and a Trustee is in charge of it. Trusts are created to benefit someone or something else (often a child or other family member). Trustees are responsible for holding and managing all the assets and property inside the Trust as well as distributing assets as needed to the beneficiaries named.
Trustee vs Executor
Trustee vs Executor really just has to do with Trusts vs Wills. A Trustee will administer a Trust, handling the assets inside the Trust and distributing or managing them as the Trust directs. An Executor, on the other hand, oversees and manages an estate by distributing a deceased person’s assets as directed by a Will.
What is a Successor Trustee?
A Successor Trustee is named second in line to serve as Trustee. Most often, the person who creates the Trust is Trustee until he or she is incapacitated or passes away. At that time, the Successor Trustee steps in. If the Successor Trustee is either unable or unwilling to serve the role required, it can be a good idea to name an alternate just in case anything happens to the originally-named person.
How Long Does a Trustee Have to Settle a Trust?
A Trustee can essentially have as long as needed to settle a Trust, provided they are acting in a timely manner and as directed by the Trust. Most Trusts take between 12 - 18 months to fully settle and distribute all assets. Generally, it takes at least six months (but often longer) to settle a Trust. The time it takes greatly depends on how complicated the Trust is and what provisions are required, as well as how old the beneficiaries are. Trusts created for the benefit of minor children may be active until the child or children are of a certain age.
How Does a Trustee Get Paid?
A Trustee gets paid what would be considered “reasonable compensation” to fully perform the duties necessary. Trustees are paid out of the Trust assets, and occasionally (though not often) the Trust will define what the compensation amount should be.
Understanding the role and responsibilities a Trustee must take on is key in order for the job to be well done. Knowing what’s expected ensures that anyone taking on the task will be able to perform his or her duties to the best of their ability.
If you’ve got an existing Trust that needs to be updated, or if you’re ready to start a Trust for the first time, take a look at what Trust & Will’s Trust-Based Estate Plan has to offer! Learn all about our comprehensive Estate Planning services that thousands of people just like you have used. We make the process simple, effective and affordable, because we believe everyone should have access to Estate Planning that protects their family and their legacy.