What is a “Trustee”?
Often while discussing “Trusts” you hear people say the word “trustee,” but what is a Trustee? Or, better yet, who is the trustee?
A “trustee” of a trust is the person that is assigned to hold onto the trust assets for the benefit of another person. Essentially this person is the one in charge who runs the show.
Let’s back up so we can really understand the Trustee’s role.
Role of the Trustee
A trust has 3 types of people
1. The person who created the trust.
2. The person who is the beneficiary of the assets
3. And the Trustee, the individual named to make sure that the assets end up with the beneficiary.
John has an estate plan which includes a trust. In his trust he has specified that his house should be given to his daughter, Anna, upon his death. In order to make sure this happens, John has to name someone to take over after his death and make sure that the house is given to Anna, so he appoints a Trustee. John names his best friend, George as the Trustee of his Trust to take over after he has passed away.
When John passes away, George will be in charge. He will transfer the house to Anna’s name, thereby fulfilling John’s wishes.
If John does not pass away, but for some reason he is so ill that he cannot handle his own finances, George will be in charge. He will step in and help John pay his mortgage payments, maintain the house, etc.
So, George, the Trustee only begins to act if John is incapacitated or has passed away.
Naming a Trustee
Often times people name their adult child as the trustee of their trust as well as the beneficiary. The Trustee can be anyone: a child, grandchild, cousin, brother, sister, parent, friend, accountant. The position should be filed by someone who is trustworthy, among other qualities.
A Trustee has duties and responsibilities. The most important thing to remember about the trustee is that these are not his assets. He is simply safeguarding them for others.
Among other things, the Trustee cannot mix trust assets with his own, use the trust assets for his own benefit (unless of course he is also a beneficiary), must keep accurate records and take care of the assets — whether that is buying insurance, investing in a prudent manner and preserving the assets for the beneficiary, among other things.
John wants George to give Anna the house when Anna reaches age 25. Anna is 21 at the time of John’s death. During the few years that George is in charge, he would have to make sure there is insurance on the home, keep it clean and maintained and preserve the house so he can turn it over to Anna at age 25. He may decide to rent it out or the trust may allow Anna to live there, rent free. At 25, title to the property will be transferred by George to Anna.
The trustee doesn’t normally do all this work himself. George can delegate some of the duties to others. For example, George won’t be mowing the lawn himself on the house, but will rather hire a gardener to do it and pay the gardener’s fees from the trust. When the person passes away, George will hire an attorney to help you complete the legal requirements of administering the trust. The same goes for hiring a CPA. George will not be preparing the tax return himself, but rather hiring a CPA to do it for the trust.
The trustee can take a reasonable fee for the services they perform (if the trust allows), and the trust document itself will tell the person how they can be compensated. Some people choose not to be compensated, whereas some do.
Resigning as Trustee
Do you have to act as trustee if someone you know has named you? No, if this is too much for you and you feel overwhelmed, then you may be able to resign as trustee and allow the next person named to take over. You are not obligated to take on this role.
If you have been named as Trustee of a loved one’s trust, feel free to contact our office for a free consultation and learn how we can help you administer the trust. If you would like to learn more about setting up your own trust, we offer free estate planning consultations as well, so feel free to get in contact with our office. (818)649-9110