I’m A Trustee! What Do I Do?
Often times the grantor or settler (person creating the trust) is the initial trustee and beneficiary of his or her trust. Upon his or her death or incompetency, a successor trustee takes control of the trust. Being named trustee is not a job to be taken lightly. Trustees are typically selected based upon their reliability, trust and character. As trustee, one has a fiduciary duty to act in the best interest of the trust and its beneficiaries.
The trustee is the legal personification of the trust. As such, it is important that the trustee understand his or her duties and responsibilities. The most important role of the trustee is to represent the trust and officially act in its name. The trustee should always identify him or herself as serving in such capacity. For example, documents should be signed “John Smith as Trustee of the Smith Family Trust”. Failure to properly identify oneself as trustee could result in personal liability, such as being personally obligated for debts intended to be obligations of the trust. When done properly, trustees can enter into contracts, be listed as owning assets of the trust and conduct all trust business.
A trustee must honor the settlor’s directions as stated in the terms of the trust. The trust document should be completely read by the trustee. Court approval is required if the terms are to be varied.
Trust property must always be segregated from the trustee’s personal property. As a fiduciary, trustees are never allowed to derive personal gain or advantage from the use or sale of a trust asset. Any self-interest transaction must be fully disclosed to and approved by all beneficiaries. A trustee has a duty to maintain clear and complete records for all money and property of the trust and may be called upon to produce an accounting of all trust activity.
Trust assets often include securities. Trustees are held to the prudent investor standard which in part dictates that a disproportionate amount of trust assets shall not be invested in one particular stock, bond or assets. Investment advisors may be employed to assist in management of the assets if permitted by the trust agreement.
The trustee is responsible for filing annual state and federal income tax returns. Most trust agreements authorize the trustee to hire a professional to prepare the tax returns. Failure to file tax returns could result in personal liability for penalties and interest.
Anyone accepting the job of trustee should consult with an attorney, preferably the preparer of the trust agreement, for direction and clarification of any questions. Serving as trustee is a big responsibility, but also a great way to honor someone who has placed great trust in you.