The last several posts have described the importance in selecting the appropriate person to be the trustee, the qualities for a good trustee and the power the trustee can be given to oversee the trust. The trustee powers are utilized by the trustee to fulfill the trustee’s duties and responsibilities. But what are those responsibilities?
Being appointed the trustee of a trust signifies a vote of confidence in that person’s judgment and integrity. However, with that confidence comes the responsibility of being a trustee. There are numerous types of trusts, but most trusts have a common set of basic responsibilities and duties, including:
- Fiduciary Responsibility. It is a trustee’s duty to act in a fiduciary role with respect to the beneficiaries of the trust. This duty generates many of the issues for a trustee. With a fiduciary responsibility, a trustee has to be concerned with both the current beneficiaries and any “remainderman” named to receive trust assets upon the death of those entitled to income or principal now. The trustee is held to a very high standard, and a trustee oversees trust investments, disbursements and trust management. You could even say the fiduciary responsibility means a trustee has greater responsibility to the trust then a trustee would have to their own personal accounts.
- Investment Standards. The trustee’s decisions with respect to investments must be prudent. The money in the trust may not necessarily be best invested in speculative or risky investments. A trustee, entrusted with the responsibility of managing the trust’s money, is required to weigh risk versus reward when making investment decisions. Management of the trust’s investments must consider both the income that may be generated by the investment and the probable safety of the invested capital.
- Distributions. The trustee is also responsible for disbursing money to the beneficiaries. The biggest concern for a trustee maybe when the trustee has the discretion whether to make distributions to a beneficiary or not. The trustee needs to evaluate the beneficiary’s current needs, future needs, and sources of income, and the trustee’s responsibility to other beneficiaries before making a decision. The hardest thing many trustees may have to do is to say “no” to a beneficiary that clearly needs financial assistance when other factors weighing against the trustee making a discretionary distribution.
- Taxes. Depending on the type of trust is being managed – irrevocable or revocable and whether or not it is a grantor trust for tax purposes, the trustee must file an annual tax return. The trust may have to pay taxes. Most of the time, the trust merely acts as a conduit for income to be passed along to the beneficiary, and the beneficiary pays any income taxes.
There are additional responsibilities that a trustee has and I will get into them next time. So, maybe in that post I will have the reasons to not have co-Successor Trustees.