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A trustee is the person who carries out the terms of a Trust. There can be more than one trustee ("Co-Trustees"). Trustees can be individuals or professionals or both. Trustees may be paid or asked to serve for free.

When choosing a trustee, consider the trustee's responsibilities under the terms of the trust, and whether the particular person or people can fulfill those responsibilities. Of course, if there are sufficient funds, the trustee can hire the expertise he or she doesn't have.

There are two basic types of trustees: the individual trustee and the corporate trustee. The individual trustee can be any person determined by the Grantor. Attorneys and CPAs are well qualified for the role, but are not essential. Family members and friends are often chosen.

Professional (corporate) trustees generally provide continuity, expertise and impartiality.

It is not unusual to have two trustees, such as an individual and a professional trustee.

The advantage of this type of arrangement is that each trustee can bring different strengths to the table. The individual can provide information about the Grantor's wishes and the beneficiary. The professional can bring investment and other expertise. (If there is more than one trustee, the rights and obligations of each should be clearly spelled out to avoid unnecessary conflict or stalemates.)

A trustee may be held personally liable for not following the instructions in a trust or satisfying standards expected of a reasonable person acting as trustee. The trustee does not eliminate responsibility by hiring professionals to assist with particular jobs, such as investment management.

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Trusts 101

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A Trustee's Responsibilities

A trustee's responsibilities include:

  • The exercise of discretion which may be built-in to the trust terms. For example, if a trust provides that funds may be used for a beneficiary's education, the trustee has to determine whether a particular education request is prudent and within the terms envisioned by the person who set up the trust (the "Grantor").
  • Management of all the assets in the trust. Assets can range from those which require minimal knowledge to maintain such as CDs, to overseeing complex businesses, or income producing real estate.
  • Manage debt owed by or to the trust.
  • Maintain detailed records.
  • Prepare detailed reports, including for the beneficiary.
  • Prepare and file federal and state tax returns.
  • Terminate the trust as provided in the terms.

What To Look For In A Personal Trustee

A person:

  • With whom you feel comfortable communicating your wishes.
  • Who has enough expertise to conduct the business of the trust, or to have sufficient judgment to pick the right people or companies to perform various tasks.
  • Who can prudently exercise discretion when discretion is permitted. Ideally, the person would be sufficiently aware of your intentions to be able to exercise discretion as you would have if confronted with the facts as they exist at the time a decision is to be made.
  • Who will act impartially and without conflict of interest.
  • Who has sufficient probable longevity to carry out the terms of the trust.

What To Look For In A Professional Trustee

  • A professional that is not limited by statute or otherwise from fully executing the responsibilities of trustee. For example, if a bank is trustee, it may be limited in the investments it can make on behalf of the trust.
  • Financial reliability.
  • The likelihood that the professional will continue on its own and not be turned into a different organization by merger or organization.

What To Talk With A Trustee About

Once you have determined who you want as Trustee and Successor Trustee (the person or company that takes over if the Trustee dies, resigns or otherwise fails to serve), it is advisable to talk about:

  • Your wishes, including how to invest the assets and what to do with the income.
  • The beneficiaries, their needs, and how you do and do not wish to take care of the beneficiaries. For example, if you set up a trust for a disabled child, discuss:
    • The nature of the child's disability.
    • The emotional and financial care provided by other people.
    • The people who take care of the child.
    • The child's capabilities, limitations, likes and dislikes, and behavioral quirks.
    • The child's routine.