Trustee: What Are Your Responsibilities?

What is a trustee? It is a person appointed to a position of trust, as a fiduciary, to manage a trust. A trust is a legal contract and arrangement between the person setting up the trust called the settlor or trustor, the trustee managing the trust, and for the purpose of benefiting one or more people called beneficiaries.

At the heart of determining your responsibilities is the trust agreement (sometimes called instrument) and state law. Often state law will permit its rules to be modified by the terms of the trust. For some matters, state law cannot be overridden. For example, if state law mandates that beneficiaries receive certain information about the trust they must get that information no matter what the trust says. Since you can face personal liability if you mishandle your actions as trustee you should take the role seriously and get legal guidance if you need it. Be certain to get the complete current trust agreement and read it. Ideally have a lawyer help you annotate the trust to identify and explain the provisions that are crucial to the job you must perform.

You have to confirm that you have complete trust information and its current legal status. The trust might have been modified, trustees and other persons may have taken actions, powerholders may have exercised powers they hold over trust assets. You need to assess all of that. All of this, the original trust and anything that modified it, are the roadmap, you must follow.

You should also evaluate whether it would be advisable to make further modifications.

Consider what income taxes the trust pays and if you can improve that situation. Has the trust used a CPA in the past? If not should you hire a CPA?

Identify trust assets. It is important to know each asset and be certain that those assets are managed in accordance with both investment prudence (unless the trust says otherwise) and the terms of the trust. Marketable securities should be invested using a reasonable asset allocation that is appropriate for the terms and goals of the trust. Real estate must be properly insured in the name of the trust.

You must show a duty of loyalty to the beneficiaries.