What Is a Trustee?
A trustee acts as a steward for the assets held within a trust.
They are responsible for administering and managing the finances of a trust according to the instructions given.
Frequently, the person who makes the trust is the trustee until they can no longer take the role due to death or incapacitation, which a successor trustee supersedes.
How to Choose the Right Trustee
Anyone above 18 can be a trustee. However, you must choose the right trustee.
A trustee can be:
Family or Friends - If you have a family member or a friend whom you trust, they can be a trustee. Make sure that they are interested in taking on the task.
Attorney or Lawyer - This option is good if you don't have a close family member or a friend to take the role. However, having an attorney or lawyer as a trustee may cost much, reducing the amount your beneficiaries receive.
Trust Company - A Trust Company will be capable of taking a serious approach to your estate and defending your legacy as they fit according to the discretion and guidance of the trust. However, if you select this option, it can be challenging to remove a Trust company.
Responsibilities of a Trustee
The responsibilities of a trustee include:
Documenting a Trust's Finance
The trustee is responsible for monitoring all the expenses and income related to the trust.
It includes recording all transactions, filing taxes on any income the trust generates, and keeping track of other financial activities.
Handling Investments on the Trust's Behalf
The trustee is also responsible for managing any investments held in the trust.
It includes ensuring that the investments perform well and align with the trust's goals.
Distributing Trust Assets to Beneficiaries
When the time comes, the trustee is responsible for distributing the trust's assets to the beneficiaries.
It includes ensuring that all debts and expenses are paid first and then distributing the remainder of the assets according to the instructions in the trust document.
Types of Trustees
There are different types of trustees, each with its responsibilities.
Administrative Trustee
An administrative trustee is responsible for maintaining the general administrative duties related to the trust.
Thus, administrative trustees are an appropriate option for those with an uncomplicated trust that do not need any specialized skills to manage.
Independent Trustee
Independent trustees are likely to maintain a higher level of impartiality though they share the same role as an administrative trustee.
Any property from the trust should not be anticipated to inherit by an independent trustee, which helps in protecting their neutrality and integrity.
Investment Trustee
Investment trustees specialize in investments. They managed and grew equities placed in trust and made decisions on buying and trading investments and building a diversified portfolio.
Successor Trustee
When the trustors become incapacitated or pass away, a successor trustee takes over.
This type of trustee is typically named in the trust document and takes on all the responsibilities of the original trustee.
Charitable Trustee
A charitable trustee is a nonprofit organization that manages a charitable trust. This type of trust is often set up to provide funding for a specific cause or charity.
A charitable trustee can be a good choice if you wish to give large portions of your estate to charitable organizations or nonprofits.
Corporate Trustee
A corporate trustee is companies employed to manage a trust, such as financial firms like investment companies or banks.
Bankruptcy Trustee
When an estate is subject to bankruptcy, a trustee is assigned to represent it.
The United State Trustee, who is a member of the Department of Justice, is the one who appoints the bankruptcy trustee.
Tax Duties of Trustees
During the lifetime of the trust, taxes must be paid on income generated from trust assets.
They can include income taxes, excise taxes, and estate taxes.
Each year, the estate and trusts are required by IRS to file income tax returns on Form 1041 to report income, capital gains, and losses.
After the trust maker's death, some estates further owe estate taxes.
Final Thoughts
A trustee is a fiduciary who manages the assets of a trust for the benefit of the beneficiaries.
The trustee has a legal duty to perform in the beneficiaries' best interests and administer the trust according to its terms.
There are many types of trustees, each with its responsibilities.
Trustees also have specific tax duties that they must fulfill.
FAQs
1. What is a trustee?
A trustee is a fiduciary who manages the assets of a trust for the benefit of the beneficiaries. The trustee has a legal duty to perform in the beneficiaries' best interests and administer the trust according to its terms.
2. How to Choose the Right Trustee?
When choosing a trustee, you should consider your trust type, the size and complexity of your estate, and your personal preferences. Select someone you trust to act in your best interests and with the necessary skills to manage the trust.
3. What happens when the trustee dies?
If the trustee dies, the successor trustee will take over and assume all of the responsibilities of the original trustee.
4. Who pays the taxes on a trust?
The trustee is responsible for paying the taxes on a trust. It includes income taxes, excise taxes, and estate taxes.
5. What are the duties of a trustee?
The duties of a trustee include managing the assets of the trust, investing the assets, and distributing the assets to the beneficiaries.
