As estate planning attorneys, we often get asked about the role of a trustee. It’s an important position that comes with big responsibilities. That’s why it’s important to understand what a trustee does before choosing one or agreeing to serve as one yourself.
In this article, we’ll explore trustees, the types of trustees, and their duties.
What is a Trustee?
A trustee is a person or institution chosen to manage and use the assets within a trust to benefit the trust beneficiaries. The trustee is legally responsible for following the instructions and distribution guidelines outlined in the trust document.
The trust creator often serves as its first trustee until they pass away or cannot serve as trustee anymore. Then, the named replacement trustee takes on the role. Responsibilities include:
- Recording income and expenses
- Distributing funds to beneficiaries
- Filing taxes, and
- Keeping accurate records.
In short, a trustee controls the use of trust assets on behalf of the beneficiaries. Their main job is to act in the best interests of the trust. That’s why it’s very important to choose someone who will fairly follow trust guidelines.
Individual vs. Corporate Trustees
When selecting a trustee, you can choose an individual, such as a family member or friend, or a corporate trustee, like a bank or trust company. Each option has its pros and cons, which we’ll explore below:
Individual Trustees
Choosing an individual trustee, such as a family member or close friend, can have many advantages. They may better understand the grantor’s wishes and the beneficiaries’ unique needs. Additionally, individual trustees may be more flexible and willing to listen to the beneficiaries’ requests. An individual trustee who is a family member may also have a good understanding of the family dynamics and how to exercise their discretion to accomplish the goals of the person creating the trust.
However, individual trustees may also face challenges. They might lack the necessary financial or legal experience, which could lead to poor decision-making or accidental breach of fiduciary duties. Besides that, family dynamics and personal relationships can sometimes complicate things, leading to possible conflicts of interest.
Corporate Trustees
Banks and trust companies are examples of corporate trustees. They have professional knowledge about the process of managing trusts, access to various resources, and experience. Corporate trustees also typically have insurance in place which can provide an added layer of protection for the trust and its beneficiaries.
Also, corporate trustees are usually better at dealing with complicated trust arrangements. They can manage the trust consistently because they are not subject to the same life events that may affect individual trustees (e.g., illness, death, or moving).
However, corporate trustees may be less flexible than individual trustees and will typically charge higher service fees.
Choosing a Replacement Trustee
When creating a trust, it’s very important to name a replacement trustee who can take over if the original trustee becomes unable or unwilling to serve. Doing this ensures that the trust is still managed consistently and protects the beneficiaries’ interests.
The trust document should clearly outline the process for choosing a replacement trustee. The replacement trustee should be informed about their possible future role and prepared to assume it if necessary.
Responsibilities of a Trustee
Being a trustee comes with a high level of responsibility. Let’s take a closer look at some of the key things a trustee must do:
Fiduciary Duty
To start with, a trustee has a fiduciary duty to act in the best interests of the trust and its beneficiaries. This means making decisions that match the trust’s purpose and the grantor’s intentions, as outlined in the trust document. Trustees must avoid conflicts of interest and cannot use their position for personal gain.
Managing the Trust
A trustee is responsible for managing the trust according to its terms and following current state and federal laws. In Alabama, trustees must follow the Alabama Uniform Trust Code in addition to other laws. It provides guidelines for the management, outlines the rights and responsibilities of trustees and beneficiaries. The Alabama Uniform Trust Code also provides directly for the trustee where the terms of the trust are silent.
Serving as trustee involves tasks such as:
- Managing and protecting trust assets
- Keeping accurate records of trust transactions
- Filing tax returns on behalf of the trust
- Communicating with beneficiaries and talking about problems they might have
- Distributing assets to beneficiaries according to the trust’s terms
Managing and Protecting Trust Assets
One of the most important responsibilities of a trustee is managing and protecting the trust’s assets. This means making smart choices about where to invest money, keeping accurate records, and using the trust’s assets to help the beneficiaries.
Trustees must be very careful when investing trust funds. They should seek professional investment advice and consider spreading out investments to make them safer. When making investment decisions, the trustee should consider what the trust is for, what the beneficiaries need, and the current state of the economy. Trustees should also keep clear records of all trust transactions, including income received, expenses incurred, distributions made from the trust, and who the distributions go to.
Communicating with Beneficiaries
Effective communication is very important for a successful trustee-beneficiary relationship. Trustees should provide beneficiaries with information about how the assets of the trust are being used. The trustee may be required to give the trust beneficiaries regular accounting updates and deal with any questions or concerns from the beneficiaries. Transparency on the part of the trustee can build trust with the beneficiaries and ensure everyone is on the same page regarding the trust’s management.
Get Personalized Trust and Estate Planning Guidance in Alabama
Choosing the right trustee is one of many critical decisions that can greatly impact the success of your trust and the well-being of your beneficiaries. By understanding the responsibilities and skills of a trustee, you can make an informed choice to match your goals and ensure your legacy is protected.
As part of the trust creation process, our estate planning lawyers at The Law Offices of Brenton C. McWilliams can provide you with guidance on selecting an appropriate trustee. Our team is committed to helping you develop a detailed estate plan to safeguard your possessions and care for your loved ones.
To learn more about how we can help you with your trust and estate planning needs, contact The Law Offices of Brenton C. McWilliams today to schedule a consultation.