There is no such thing as a one-size-fits-all solution in estate planning, and that’s part of its beauty. We are all working hard to create a legacy that we can pass on to our loved ones. However, these legacies take on so many different shapes, sizes, and flavors, and we all have a different approach to how we define wealth.
This means that some of us might just need a simple Will, while others might need all the estate planning bells and whistles, including a Trust. If you’re considering setting up a trust, you also need to be thinking about who you’ll appoint as your trustee, and what kind of role you’ll want them to serve.
In this guide, we’ll reveal 7 different types of trustees that you can choose from. The information will include what their roles are, their duties, and how they’re all different from each other. Our goal is that you’ll be able to select the best type of trustee for your estate plan.
7 Different Types of Trustees
Before we get started, you might be wondering “what is a Trust,” and “what is a trustee?” In our “What is a Trust” guide, we explained that a Trust is a legal arrangement through which you can appoint a third party to legally handle your property. This third party individual is your Trustee, and is solely responsible for managing your assets and distributing them to your beneficiaries, per your instructions.
When setting up your estate plan, you have several different types of trustees you can choose from. Each one offers a different scope of trustee responsibilities and obligations, so you’ll want to select the type that best serves your interests.
Here are the 7 different types of trustees that are included in your Trust planning toolkit:
An administrative trustee, as you may have guessed, is responsible for taking care of the general administrative duties related to the trust.
This individual is often responsible for day-to-day tasks such as bookkeeping, paying bills, distributing assets, and filing tax returns. Administrative trustees are typically a friend or family member of the trustor who has the ability to handle these responsibilities in an impartial manner.
Administrative trustees are an appropriate choice for those with an uncomplicated trust that do not require any specialized skills to manage. If you choose to appoint a friend or family member, make sure to select someone you can absolutely trust.
An independent trustee describes an individual who is not related to other parties involved in the terms of the trust, mainly the trustor and their beneficiaries.
Independent trustees share the same role as an administrative trustee, yet they are likely to maintain a higher level of impartiality. The independent trustee should not be slated to inherit any property from the trust, which helps protect their integrity and neutrality.
If you have any worry that your family members might disagree, or worse, dispute over the terms and management of the trust, it may be best to appoint a trustee who can remain absolutely impartial. You can have better peace of mind knowing that they are less likely to be swayed by emotion, and won’t have any hidden incentives to manipulate the terms of the trust in any way.
If you have an investment-centered trust, consider appointing an investment trustee. These trustees specialize in investments.
An investment trustee specializes in managing and growing equities placed in a trust. They make daily decisions on buying and trading investments, as well as building a diversified portfolio. Their main responsibility is in building wealth and maintaining growth on behalf of the trust, unless the trust states otherwise.
If investments represent a significant portion of your trust, or growing your investments is a top priority (or both!), it may make sense for you to hire a specialist. By appointing an investment trustee, your trust can benefit from the choices made by someone who best knows how to manage and safely grow portfolios.
A successor trustee describes the trustee who takes over when the trustor passes away or becomes incapacitated.
Typically, a trustor can also serve as the initial trustee of their own trust. Of course, this requires them to be alive in order to manage a living trust. The successor, or alternate, trustee is on standby when the original trustor can no longer manage the trust. They are responsible for carrying out the same duties without interruption.
Appointing a successor trustee is necessary if you wish to manage your trust yourself. You might choose to do so if you have incentive to place assets into a trust during your lifetime, but want to be directly involved in managing the trust. By having an alternate in place, the trust will continue to be managed without disruption in case you become incapacitated or pass away.
Charitable trustees are responsible for providing charity governance, including providing oversight on how the charity should be managed.
This type of trustee will run a charitable trust on the donor’s behalf. They will ensure that donations are made, and will often also sit on the charity’s board of trustees. Responsibilities include oversight of the charity, strategic planning, raising funds, and setting policies.
Charitable trustees are a great choice for individuals who wish to give large portions of their estate to one or more charitable organizations and nonprofits. These individuals typically have experience managing and overseeing charities, so that they can best execute your vision.
Corporate trustees are companies that are hired to manage a trust. These are typically financial firms, such as banks or investment companies.
The primary role of a corporate trustee is in building, managing and protecting your wealth that is placed within the trust. Some activities include buying and selling assets, filing tax returns, paying bills, bookkeeping, and distributing assets. These entities also have the expertise to effectively manage financial assets, including investments and real estate.
Corporate trustees are often hired when a trustor does not have a friend or family member that they can fully trust to manage their affairs. In addition, they might prefer to hire an entity with professional experience, especially if they have complex financial affairs.
A bankruptcy trustee is appointed to represent an estate that is subject to bankruptcy. This type of trustee is appointed by the United States Trustee, who is a part of the Department of Justice.
Responsibilities of a bankruptcy trustee vary based on the type of proceeding, which include Chapter 7, Chapter 11, and Chapter 13. However, the main duty is to represent the debtor’s trust and collaborate with the bankruptcy court. In a Chapter 7 bankruptcy, for example, the trustee will work to liquidate all the assets placed in the trust in order to pay creditors.
One would never hope to appoint a bankruptcy trustee, but unfortunately you wouldn’t have a choice. If you go into bankruptcy, voluntary or involuntarily, the Department of Justice would appoint the trustee to represent your trust.
How to Choose the Right Trustee Type for You
When setting up a trust, not only do you need to appoint the right trustee, you also need to select the right type of trustee. Your decision will largely depend on your priorities and intentions for the trust. Luckily, there are several types of trustees you can choose from to best fit your unique circumstances.
If you’re having a hard time choosing, know that you can have more than one trust. For example, let’s say that you want to leave property for your children, but donating to charities is also important to you. Since these are two completely different functions, you could consider setting up a trust specifically for your beneficiaries and appoint an administrative trustee to manage it. Then, you could set up a separate trust specifically designated for your charitable activities. Naturally, a great fit for this type of trust would be a charitable trustee.
This goes to show that an estate plan is highly customizable, and there are many options to choose from. Ideally, you’ll spend a good amount of time building an airtight estate plan that best fits your unique circumstances. However, because there are so many options, this might feel daunting. The good news here is that you can get started with the basics while getting assistance from well-versed professionals. We recommend establishing a basic Will and Trust today, which you can continue updating and building upon as you gain more experience. That way, you can rest assured that you have at least a base layer of protection for you and your family.
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