A trust is created and funded by a trustor and is managed for the benefit of the beneficiaries by an appointed trustee. A trustee is either a person or an institution tasked with managing a trust. The trust document will, among other key terms of the trust, establish who is to be the trustee.
Being a trustee is a role rife with responsibility. The duties of a trustee are numerous and are not to be taken lightly. In executing the duties of a trustee, the trustee must be constantly vigilant in upholding the fiduciary duty owed to the trust beneficiaries and remainder beneficiaries. This duty obligates the trustee to act with care in managing trust investments as well as making proper distributions from the trust. Furthermore, the trustee has the responsibility to manage the trust according to the terms set forth in the governing trust documents. This is somewhat of a higher level look at the responsibilities of a trustee. Let’s get into more of the specific duties a trustee is responsible for carrying out over the course of managing a trust.
A trustee is tasked with prudently investing trust funds. This means that speculative or particularly risky investments are too be avoided. Reasonable investments for a trust may vary, but it is a constant that a trustee must take into account the interests of current and future trust beneficiaries as these are the people who are entitled to the income generated by the trust. Investment strategy must take into account the present and future financial needs of the beneficiaries as some investments will be better in the short term and others will be better for long term goals.
In addition to prudently investing trust funds, a trustee is also responsible for making proper distributions from the trust to the trust beneficiaries. A proper distribution is one that is made pursuant to the terms of the trust and also accounts for the current and future needs of the trust beneficiaries as well as their other sources of income. The size of the trust must also be considered. Sometimes, it is the trustee’s job not to make a trust distribution and instead tell the trust beneficiaries “no.” While this may not land well, it can be a crucial part of the trustee’s responsibilities to both the trust and the beneficiaries.
Trustees must also properly account for and maintain trust records. Keeping track of income generated by the trust as well as distributions made from the trust and trust expenditures is a critical part of the job. This information must be provided to the beneficiaries on what is usually an annual basis, but may be more or less regular than that depending on the terms of the trust. Furthermore, trustees must keep track of the trust principal and the trust income separately.
Trustees must also see to it that taxes are properly filed and paid for the trust. Many trustees may outsource trust taxes to a certified public accountant, but they still need to provide the accountant with accurate and detailed records regarding trust finances for the taxes to be properly filed.
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