You are both trustworthy and prudent. So it comes as no surprise that a family member or a friend has asked you to serve as trustee. While you are eager to help, you may feel overwhelmed. This is a natural reaction. Serving as a trustee comes with a great deal of responsibility but understanding what is expected of you can help you manage those responsibilities.
Trustees are fiduciaries and are held to a high standard. The trustee must manage the trust property on behalf of the trust’s beneficiaries. The trustee’s responsibilities will be governed by the terms of the trust document and by law. The trustee should start by becoming familiar with the trust, and it is often a good idea to seek professional advice along the way.
Preserve and protect trust assets
A trustee must preserve and protect the trust’s assets. The trustee should be familiar with the trust’s assets and should implement a plan to manage those assets. Associated responsibilities may include paying bills or maintaining appropriate insurance.
Certain assets such as real estate or valuables may require hands-on oversight. Investments must be prudently managed, taking into account cash flow needs, desire for asset growth, and the appropriate level of risk given the trust’s purposes. Complex or valuable assets may benefit from professional management.
Make distributions to beneficiaries
A trustee should look to the trust document to understand when and how trust property is to be distributed to the trust’s beneficiaries. The trust may give the trustee broad discretion to make those decisions or may provide more specific guidance. Sometimes a trustee may be required to make a distribution to a beneficiary. At other times, the trustee’s responsibility may be to set limits and say “no” even when a beneficiary requests a distribution.
Keep careful records and keep the beneficiaries informed
Trustees generally do not operate on an island. The trustee has a responsibility to keep the trust’s beneficiaries (or their legal representatives) reasonably informed about the operation of the trust. A trustee should keep careful records particularly of the trust’s income, expenses, distributions, and other financial transactions. This responsibility should be taken seriously. A trustee can be held personally liable for transactions that cannot be corroborated!
File tax returns
Many trusts are separate taxable entities. This means that the trustee may need to file a state or federal income tax return for the trust. The trustee may need to ensure that the trust pays taxes from the trust’s assets.
The foregoing list is not intended to be exhaustive. A trustee’s responsibilities may vary depending on the terms of the trust instrument, governing law, the nature of the trust property, and other factors. Nevertheless, an organized and diligent trustee who is supported by a knowledgeable team will be equipped to successfully handle the responsibility of serving as trustee.