Responsibilities of A Trustee

What Are the Responsibilities of a Trustee?

A Trustee is an individual who takes care of a trust’s assets. The trustee is accountable for managing the financed and assets of the trust and distributing funds to the beneficiaries according to the trust’s instructions.

In some cases, the trustee is the individual who forms the trust. However, a successor must take their place when this person grows incapacitated or dies.

What are the responsibilities of a trustee? We will cover this in-depth further in the article, but here are some of the most important duties of trustees:

• Distribution of assets to beneficiaries
• Keeping a record of all transactions involving the trust
• Recording income and expenses
• Paying taxes on the trust’s income

Essentially, the trustee oversees the trust’s assets. They have the final say regarding the trust’s finances, so they must be trustworthy and abide by their fiduciary duty.

Since the trustee’s primary goal is to act on behalf of the trust and with the trust’s best interests in mind, the trustee’s character is of the utmost importance. Therefore, when trusts are formed, it is essential to have a trustee who can espouse their personal goals or motivations for the collective good of the trust.

What are some of the other traits that a trustee should have?

What is the Role of the Trustee?

Some people think that only the very wealthy deal with estate planning. However, everyone should make plans regarding their legacy when the time is right. If individuals and families do not come up with an organized, legal map for their financial future, they basically leave their entire legacy up to the courts in California. When people work hard and are rewarded by collecting wealth and assets, they need to figure out what will happen to it all when they pass away.

Estate planning is not something that an individual can quickly figure out, either. Estate planning is usually most successfully done over the course of a number of different meetings with a trained professional.

Everyone has different goals and objectives when it comes to estate planning. Different individuals also have entirely different assets they want taken care of. Some individuals appoint an executor of their estate, while others create a trust. When they reach this point, it is vital for people to be aware of their options so they can make an informed decision that honors not only their life and accomplishments, but the future of their family and beneficiaries.

What Are the Powers and Duties of a Trustee?

When a trustee assumes their role, they simultaneously take on many duties. But, overall, the trustee is in place to protect the individual’s legacy and that of their family.

While that is the trustees’ overall goal, they are also tasked with specific, practical responsibilities to take care of on a day-to-day basis.

• Administer the Trust to Beneficiaries: One of the most important duties of the trustee is to ensure that the beneficiaries receive their due assets. Usually, once these payments begin, they continue, but sometimes the trustee must make changes to or check on the flow of assets, and trustees should always be aware of the process.

• Abide by Fiduciary Duties: A trustee is a fiduciary, meaning they agree to protect the trust. Fiduciaries must act on behalf of the trust and place the trust before their interests. Trustees must understand from the beginning that they must be ethical and moral. Trustees should also be aware that there will be serious consequences if they breach their fiduciary duties. For example, if a trustee is self-dealing, they might have to return the assets and be charged with a crime.

Trustee’s Responsibility to Communicate with Beneficiaries

Trustees should be ready to communicate directly with beneficiaries and answer their questions. From providing financial updates and statements to tax reports, the beneficiaries will want to stay in touch with the trustee and have a right to.

• Understand the Trust’s Terms

Trustees must make sure that assets remain safe and are distributed in a timely fashion. Typically, assets are delivered on a schedule that all parties accept and are aware of.

Additionally, the trustee should work to keep assets safe and secure and understand the terms established in the trust. For example, the trustee should understand the identity of the beneficiaries and possess their contact information and records.

• Take Part in Investments

Some trusts include instructions for proper investments. If this occurs, the trustee should be prepared to make prudent investments. Ideally, a trustee’s investments help the trust last longer and benefit the beneficiaries.

• Accurately Answer Questions

Beneficiaries normally have questions about the trust, and usually, these questions fall on the trustee. Therefore, trustees must be knowledgeable of the trust and how it works. Some information about the trust may be confidential or considered private—especially within a family trust—so trustees should be sensible with the information they are entrusted with.

• Make Vital, Informed Decisions

Another duty of a trustee is to make rational decisions regarding the timing and method of the beneficiary’s payments. Trustees are also responsible for other decisions regarding the trust’s provisions, which is another reason people should be careful when choosing a trustee for their affairs.

When a person creates a trust and appoints a trustee, they give the trustee valuable authority regarding the trust. Some decisions are made when the individual creates the trust, and the trustee simply carries them out. However, some trustees can decide, for example, the number of additional distributions for beneficiaries. Deciding how many more assets a beneficiary may receive is an important decision that trustees make under a lot of pressure.

• Maintain Accurate Records

Another important aspect of being a trustee is being organized and responsible for keeping records. Trustees need to file tax returns on behalf of the trust, keep careful financial records, stay aware of the trust’s money and when it changes, and keep all trust documents organized.

While these duties apply to many trustees, a trustee’s responsibilities fluctuate based on time and the size and type of the trust.

When a person forms a trust and then becomes both a trustee and a beneficiary, they have more freedom regarding the choices and actions the trust carries out. Why? Because, in this case, the trustee is running the trust on their behalf.

However, when the trustee passes away or becomes incapacitated, they are replaced by a successor trustee.

Question and Answer

Individuals who are considering forming a trust often have questions about the process. For example, some people want clarification on the differences between trustees and beneficiaries, while others are curious about how trustees derive compensation. Here are a few commonly asked questions about trustee duties and powers, along with the answers.

How Does a Trustee Get Paid in California?

Trustees are paid what many labels “reasonable compensation” in exchange for taking care of their duties. They are paid from the assets of the trust. Some trusts, when formed, include information about the trustee’s payment amount.

Is a Trustee Personally Liable?

Trustees can be found personally liable in some cases. Since trustees agree to make all decisions on behalf of the beneficiaries and in their best interests, sometimes disputes arise.

Trustees can protect themselves by keeping careful records of all financial actions. Trustees also should fully understand the trust’s goals and the person who formed them. Finally, if they have questions themselves, they should ask them.

Is a Successor the Same as a Beneficiary?

A successor trustee is a person who is second in line to the trustee. Typically, the individual who forms the trust is the trustee, at least at first. However, the successor trustee takes over when they die or become incapacitated.

If the Successor Trustee cannot serve the required role, it makes sense to name an alternate in the event the original trustee cannot fulfill their duty anymore.

How Long Does a Trustee Have to Notify Beneficiaries in California?

Many individuals wonder about the timeline for notifying beneficiaries. Usually, trustees have an unlimited amount of time to settle the trust as long as they work efficiently under the trust’s provisions.

Commonly, trusts take 12-18 months to settle and for the trustee to distribute the assets. However, the time frame fluctuates based on the complexity of the trust, the rules of the trust, and the age of the beneficiaries. For example, a trust created for the college funds of minors may become “activated” when they are 16 or 18.

Contact Nakase Wade

At Nakase Wade, we understand the challenging duties that trustees take on, and we want to help them succeed.

If you have questions concerning a trustee’s liability in California, contact our business litigation attorney today for a free consultation. Our skilled, experienced attorneys will help guide you through all of the important decisions, so you can create a successful, lasting legacy.