Duties and responsibilities of a trustee

What is a trust?

A trust is a legal entity created to hold and manage property on behalf of the trust’s beneficiaries, which may include individuals, family members and charitable organizations.

Common trustee responsibilities

A trustee manages a trust's assets on behalf of the beneficiaries. The trustee must understand and execute on the terms of the trust.

In general, trustee responsibilities are likely to include the following:

• Reviewing and deciding on requests for trust distributions to beneficiaries based on the terms of the trust or the trustee’s discretion.
• Following the Prudent Investor Rule by managing financial assets reasonably and for the best interests of the trust beneficiary. This may require more diligence than the trustee may otherwise commit to their personal investments.
• Hiring and overseeing an investment advisor.
• Complying with applicable tax laws, preparing any Form 1041 fiduciary trust tax returns, and communicating Schedule K-1 tax forms to trust beneficiaries as needed.
• Opening and managing bank accounts in support of managing trust assets and liabilities such as making income or property tax payments on behalf of the trust.
• Delegating tasks beyond the trustee's abilities, such as hiring an accountant for tax returns.
• Making any mandatory distributions of trust income or principal.
• Providing an accounting of trust assets and activity to beneficiaries. This may include providing Crummey notices to trust beneficiaries following certain trust contributions that are expected to qualify for the annual gift tax exclusion.

Additional considerations

Many trusts require the trust to hold a bank account to facilitate paying expenses which the trust incurs or administering distributions to beneficiaries.

When a trust holds real property such as rental real estate, the trustee may also need to a hire property management firm. In this case, the trustee would likely need to allocate a portion of the gross rental income (and perhaps trust principal) towards related expenses such as insurance, taxes, maintenance, repairs, and capital improvement.

The trustee should regularly review the performance of trust investments relative to appropriate benchmarks. It is also important to ensure the trust assets are sufficiently liquid to meet expected distributions for beneficiaries and other trust expenses. This review should also include an assessment as to whether trust investments are still appropriate or if changes should be made. The trustee may determine that rental property should be sold or refinanced, a life insurance policy should be exchanged for one with better terms or ratings or allowed to lapse, or if an additional legal entity such an LLC is more appropriate to insulate risk among trust assets.

A trustee must never commingle trust assets with their personal property. There should be a clear barrier, even if the trustee is related to the trust beneficiaries.

Trusts typically provide for a certain level of trustee discretion to execute their duties and the terms of the trust. Managing the trust on behalf of current beneficiaries can create adverse consequences for the trust’s remainder beneficiaries. When a potential conflict exists, the trustee must continue uphold its fiduciary duties by following the terms of the trust and making decisions in the best interest of the beneficiaries.

Conclusion

Having the right trustee can be critical to terms of the trust’s proper administration. The trustee will further the trust’s success by understanding their role and responsibilities, the grantor’s intentions, and the terms of the trust. To ensure their success, the trustee should surround themselves with a team of professional advisors. This support will help the trustee serve effectively and ensure that the trust and its beneficiaries are cared for as the grantor intended.

Your Citizens Relationship Manager can help you navigate any of your trust or trustee needs, whether you are currently a trustee or assuming the role of trustee or are seeking the assistance of a professional trustee.