A trustee is a person or organization that is legally responsible for managing the assets held in a trust for the benefit of the trust’s beneficiaries. The trustee holds legal title to the trust’s assets and has a fiduciary duty — a legal obligation — to manage those assets prudently and in accordance with the terms of the trust document and the best interests of the beneficiaries.
The role of trustee is one of the most important and consequential positions in estate planning. Choosing the right trustee and understanding the responsibilities involved can make a significant difference in how well a trust serves its intended purpose.
What a trustee does
The specific responsibilities of a trustee depend on the type of trust and the terms of the trust document but generally include:
- Managing trust assets — investing, maintaining, and managing the assets held in the trust with the care and skill of a prudent investor
- Making distributions — distributing income or principal to beneficiaries according to the terms of the trust document
- Keeping records — maintaining detailed records of all trust assets, income, expenses, and distributions
- Filing tax returns — filing annual income tax returns for the trust and providing tax information to beneficiaries
- Communicating with beneficiaries — keeping beneficiaries informed about trust activities and providing regular accountings
- Following the trust document — administering the trust strictly in accordance with the terms and instructions set out in the trust document
- Avoiding conflicts of interest — acting solely in the interests of the beneficiaries and avoiding any transactions that benefit the trustee personally at the expense of the beneficiaries
The trustee’s fiduciary duty
The trustee’s fiduciary duty is the cornerstone of the trustee-beneficiary relationship. It requires the trustee to:
- Act in the best interests of the beneficiaries at all times
- Be loyal to the beneficiaries and avoid self-dealing
- Manage trust assets with prudence and care
- Be impartial among multiple beneficiaries
- Keep trust assets separate from personal assets
- Keep beneficiaries reasonably informed
- Account for all trust assets and transactions
A trustee who breaches their fiduciary duty can be held personally liable for any losses resulting from the breach and may be removed by a court.
Types of trustees
There are several types of trustees each with different characteristics and considerations:
- Individual trustee — a person named by the grantor to serve as trustee. This is often a family member, friend, or trusted advisor. An individual trustee typically has personal knowledge of the grantor’s wishes and the beneficiaries’ needs but may lack professional expertise in trust administration, investing, and tax matters.
- Corporate trustee — a bank or trust company that provides professional trustee services. A corporate trustee has professional expertise, institutional stability, and continuity but charges fees for its services and may be less personally familiar with the grantor’s wishes and family circumstances.
- Co-trustees — two or more trustees who serve together and must generally act jointly in making trust decisions. Co-trustees can combine the personal knowledge of an individual trustee with the professional expertise of a corporate trustee.
- Successor trustee — the person or organization named to take over as trustee when the original trustee is unable or unwilling to continue serving due to death, incapacity, resignation, or removal.
Individual trustee vs corporate trustee
Choosing between an individual trustee and a corporate trustee involves weighing several factors:
Individual trustees offer:
- Personal knowledge of the grantor and beneficiaries
- Sensitivity to family dynamics and individual needs
- Lower or no fees in many cases
- Flexibility and personal attention
Individual trustees may lack:
- Professional expertise in investing and trust administration
- Continuity — an individual may predecease the beneficiaries or become incapacitated
- Objectivity — family relationships can complicate trust administration
- Time and availability to fulfill trustee responsibilities
Corporate trustees offer:
- Professional expertise in investing, accounting, and trust administration
- Institutional continuity — the institution continues regardless of individual staff changes
- Objectivity and impartiality
- Accountability and regulatory oversight
Corporate trustees may lack:
- Personal knowledge of the family and beneficiaries
- Flexibility and personal attention
- Affordability for smaller trusts — fees can be significant
Many families choose a co-trustee arrangement that combines an individual trustee for personal knowledge and family sensitivity with a corporate trustee for professional expertise and continuity.
How to choose a trustee
When choosing a trustee consider the following qualities:
- Trustworthiness and integrity — the trustee will have significant control over assets and must be completely trustworthy
- Financial responsibility and competence — the trustee must be capable of managing investments and financial matters prudently
- Availability and willingness — serving as trustee is a significant responsibility that requires time and commitment. Make sure the person you choose is willing and able to serve.
- Impartiality — if there are multiple beneficiaries the trustee must be able to treat them fairly and impartially
- Longevity — consider whether the trustee is likely to outlive the trust especially for trusts designed to last many years
- Absence of conflicts of interest — the trustee should not have personal financial interests that could conflict with their duty to the beneficiaries
Trustee compensation
Trustees are generally entitled to reasonable compensation for their services unless the trust document specifies otherwise. Individual trustees who are family members often serve without compensation though they may be reimbursed for out of pocket expenses. Professional and corporate trustees charge fees that are typically based on a percentage of the trust’s assets — commonly between 0.5 and 1.5 percent per year — plus fees for specific transactions.
Removing a trustee
A trustee can be removed in several ways depending on the terms of the trust and state law:
- By resignation — a trustee can resign subject to the terms of the trust document
- By the grantor — if the grantor is still alive and the trust is revocable the grantor can typically remove and replace the trustee
- By the beneficiaries — in some cases beneficiaries can remove a trustee by unanimous agreement
- By a court — a court can remove a trustee who has breached their fiduciary duty, is unable to perform their duties, or whose removal is in the best interests of the beneficiaries
Key terms to know
- Trustee — the person or organization legally responsible for managing trust assets for the benefit of the beneficiaries
- Fiduciary duty — the legal obligation to act in the best interests of the beneficiaries
- Co-trustee — two or more trustees who serve together
- Successor trustee — the person or organization named to take over as trustee when the original trustee can no longer serve
- Corporate trustee — a bank or trust company that provides professional trustee services
- Self-dealing — a transaction in which the trustee benefits personally at the expense of the trust beneficiaries
- Prudent investor rule — the legal standard requiring trustees to invest trust assets with the care and skill of a prudent investor
Sources
- American Bar Association — Public Resources
- Uniform Law Commission — uniformlaws.org
- USA.gov — Estate Planning
This article is for general informational purposes only and does not constitute legal or financial advice. Trust laws vary by state. Consult a licensed attorney for guidance specific to your situation.