A trustee is an institution or person (like a bank or trust company) placed in charge of managing the property and other assets placed in a trust for the benefit of someone else (known as the beneficiary). Trustees have the fiduciary duty to put aside their personal goals in order to do what is best for the trust. Trustees are held to a high standard of honesty.
Responsibilities of the Trustee
The trustee is ultimately responsible to the beneficiaries for sensible and judicious management of the trust assets. Some principal responsibilities of a trustee are:
- They must keep separate checking accounts and investments so as to not mix the trust assets with their own.
- They must be invested in a way that will allow reasonable growth with minimal risk.
- They must file tax returns accurately, and report to the beneficiaries as the trust requires.
Different Types of Trustees
- Administrative Trust– holds duties required by the state, and files tax returns for the Trust
- Investment Trust– makes daily investing and management decisions for the Trust assets
- Independent Trust– can distribute to the beneficiaries
Trustees can be a company or an individual. Individuals tend to be less expensive, though they may need to incur expenses for outside experts. They have a greater personal knowledge of the beneficiaries.
Companies tend to have more experience and expertise and lack any bias in decisions. There is government-regulated insurance to ensure that they are in compliance with instructions and agreements.
Different Types of Trusts and What They Do
- Revocable living trust
- Names a successor trustee, who administers and settle the trust after the trust maker dies or becomes mentally incapable. However, the trust maker typically acts as the trustee during their lifetime, and they can make changes or terminate the trust. The advantage of a living trust is that it can keep private the details of your estate.
- Irrevocable Trust
- It cannot be changed during the trust maker’s lifetime, and it cannot be revoked after his or her death. These trusts are more popular because they are tax efficient and assets are completely transferred into the beneficiary’s name.
- Testamentary trust (will trust)
- Is irrevocable. It specifies how the assets must be endowed after their death.
- Insurance trust
- It is also irrevocable. It combines the trust maker’s life insurance policy within the trust while avoiding tax on the estate.
- Credit shelter trust (family trust)
- Allows a spouse or family member to receive the remainder of the estate tax-free forever – even if it grows!
- Qualified terminable interest property trust
- Apportions assets to different beneficiaries at different times. A common example is after the trustor’s death, the assets go to the spouse, and after that spouse’s death, the children would receive the remainder of the estate.
- Charitable trust
- Is when a trust maker selects a charity as the beneficiary. It could also be part of a normal trust where a portion goes to the inheritors and the remainder to the charity.
- Blind trust
- Is handled exclusively by the trustees without the beneficiaries’ knowledge. Their purpose is to avoid any conflicts among any of the involved parties.
There are many different types of trusts, and a competent legal/tax counsel can help you determine what is best for you and your family.
Trusts can be used to manage assets both during life and after death, as well as provide a way to endow estates to the beneficiaries with fewer taxes. Trusts help avoid court fees and probate, and they can protect you from creditors. Trusts are an opportunity to protect your wealth and financial legacy.
Adam Randle is a freelance writer for First Western Trust who specializes in wealth and investment management solutions. Our local experts have the knowledge and resources to protect and grow your legacy and your business.