Before You Decide on a Trustee

Before choosing a trustee , know that the job comes with many responsibilities — from keeping careful records and making smart investment choices to staying fair and keeping beneficiaries informed. A trustee must always put the beneficiaries’ interests first and handle everything with care, honesty, and good judgment.

What Are a Trustee’s Responsibilities?

Trustees have significant legal responsibilities, primarily related to administering the trust on behalf of beneficiaries according to the terms of the trust document. However, the role can require many different types of tasks. For example, even if a tax professional is engaged to prepare tax returns, the trustee is responsible for ensuring that they’re completed correctly and filed on time.

One of the more challenging trustee duties is to accurately account for investments and distributions. When funds are distributed to cover a beneficiary’s education expenses, for example, the trustee should record both the distribution and the expenses covered. Beneficiaries are allowed to request an accounting of the transactions at any time.

The trustee needs to invest assets within the trust reasonably, prudently, and for the long-term sake of beneficiaries. And trustees must avoid conflicts of interest — that is, they can’t act for personal gain when managing the trust. For instance, trustees typically can’t purchase assets from the trust. The trustee probably would prefer a lower purchase price, which would run counter to the best interests of the trust’s beneficiaries.

Finally, trustees must be impartial. They may need to decide between competing interests while still acting within the terms of the trust document. An example of competing interests might be when a trust is designed to provide current income to a first beneficiary during his or her lifetime, after which the assets pass to a second beneficiary. Although the first beneficiary would probably prefer that the trust’s assets be invested in income-producing securities, the second would likely prefer growth investments.

Qualities of an Effective Trustee

Several qualities help make someone an effective trustee, including:

• A solid understanding of tax and trust law,
• Investment management experience,
• Bookkeeping skills,
• Integrity and honesty, and
• The ability to work with all beneficiaries objectively and impartially.
  
  

And because some trusts continue for generations, trustees may need to be available for an extended period. For this reason, many people name a financial institution or professional advisor, rather than a friend or family member, as trustee.

We Can Answer Your Estate Planning Questions

Choosing the right trustee is an important decision, as this person or institution will be responsible for carrying out the terms outlined in the trust documents. If you have questions about the process or need further guidance, the estate planning professionals at Ramsay & Associates are here to assist. Contact us today, and we can help you weigh the options available to you.