For most people, the thought of creating an estate plan is not something they look forward to. However, in large part, this is because the world of estate planning contains many unfamiliar terms and concepts. For example, trusts are not something that most people have everyday experience dealing with. As humans, it’s normal for us to be hesitant to engage in something that we know very little about. However, while the laws surrounding trusts can be quite complex, on a basic level, trusts are fairly straightforward. If you are wondering, What is a trustee and why is it important? read on to learn more about their role in managing a trust.
What Is a Trust?
A trust is a legal relationship between at least three parties. A grantor or settlor is the name given to a person who sets up the trust. The trustee is the person who oversees and administers the trust. The grantor can also be the initial trustee. And finally, the beneficiary or beneficiaries are those whom the trust is meant to benefit. In certain trusts, the grantor is also the initial trustee and the initial beneficiary, but provisions are included in the trust for a successor trustee and other beneficiaries after the grantor’s death. In terms of legal obligations, the trustee’s role is the most complex. To use a driving analogy, the grantor would be the civil engineer who designed the roads, the trustee the driver of the car, and the beneficiary the passenger. So the grantor sets the path and determines the “rules” of the trust, the trustee carries out the grantor’s plans according to those rules, and the beneficiary is essentially along for the ride.
What Does a Trustee Do?
The trustee is the person named by the grantor to administer or manage the trust. The overarching duty of the trustee is to carry out the terms of the trust, always acting in the best interest of the beneficiary. More specifically, a trustee’s responsibilities and duties include the following:
Understand the Trust Document
The first order of business for a trustee is to ensure that they understand the trust document. This is critical because the trustee is legally responsible for performing the duties outlined by the grantor. In some cases, a trustee’s responsibilities are relatively minor; however, trustees overseeing more complex trusts often choose to work with a knowledgeable estate planning attorney to guide them along the way.
Act as a Fiduciary
Trustees have a fiduciary duty to trust beneficiaries. The nuances of what a fiduciary duty entails can be complicated. However, generally speaking, this means that the trustee must place the interests of the beneficiary ahead of their own.
Make Sound Investment Decisions
The nature of most trusts is that money will sit in the trust for a period of time before being distributed. Sometimes, grantors will include language in the trust deed requiring the trustee to manage these assets. Trustees should always strive to maintain the value of the trust and not engage in risky or speculative investments. Additionally, trustees cannot invest trust funds in any way that would give rise to a conflict of interest. For example, a trustee cannot invest trust assets in their own company or loan money to a loved one from the trust.
Make Trust Distributions
There are many different types of trusts, but most call for the trustee to make distributions to beneficiaries according to the terms of the trust. For example, a grantor may set up a trust, naming a young child as the beneficiary. In this case, the grantor would also include terms under which a distribution is appropriate. The trustee is responsible for receiving requests for distributions and determining if they fit within the allowable distributions as outlined in the trust document.
Communicate with Beneficiaries
Beneficiaries will look to the trustee when they have questions about the trust. Trustees should be prepared to answer these questions. While it is not a legal requirement that trustees and beneficiaries get along, having a common understanding and respect makes life easier for both parties.
Maintain Records and Prepare Tax Documents
The trustee is also responsible for keeping detailed financial records of the trust assets. This includes tracking all money that goes into and comes out of the trust. Trustees should make sure to keep their records organized for easy review. In addition, if necessary, the trustee will prepare all tax forms and file a tax return on behalf of the trust.
Why Is a Trustee Important?
Trustees are important because they are the ones who oversee the everyday decisions regarding the trust. Thus, from a grantor’s perspective, it is imperative to select a trusted person to serve as a trustee. While grantors provide guidance to the trustee in the trust deed, not every situation fits nicely into the text of a trust. Sometimes issues arise that seem to fall into a gray area. You want to be able to rest assured, knowing that when these situations come up, the trustee will exercise sound judgment.
From a beneficiary’s perspective, trustees are important because they act as the gatekeeper between the beneficiary and the trust assets. It is important to keep in mind that trustees will inevitably need to exercise their discretion when making distributions.
Contact the Trusts and Estates Lawyers at Beller Bustamante, P.L., to Schedule a Consultation
If you are considering creating a trust or were named as a trustee and have questions about the trust creation or administration process, reach out to Beller Bustamante, P.L. Our South Florida estate planning lawyers have more than 40 years of experience helping individuals and families understand and benefit from trusts. We are a full-service estate planning law firm and also handle a wide range of other related issues, such as wills, guardianship, probate proceedings, and more. When you enlist the help of Beller Bustamante, P.L., you can rest assured that you are in good hands. We take as much time as necessary to answer all your questions, so you are comfortable when you leave our office. To learn more and to schedule a consultation with one of our Jacksonville estate planning lawyers, give us a call at 904-288-4414. You can also reach our lawyer through our online form, and we will contact you soon.