Carnegie Investment Counsel Blog

What Is the Role of a Trustee?

Posted by Carnegie Investment Counsel on Jan 12, 2023 2:00:00 PM

Role of a Trustee

When you’re looking at your overall financial picture, the role of trustee is an important position that comes with a lot of responsibility, but what exactly does the position entail?

 

What Is a Trustee?

A trustee is a person or entity that’s responsible for holding and maintaining the assets of a third party. While a trustee may need to be appointed for a variety of reasons, including bankruptcy, certain retirement plans or for a charity, one of the most common, and the one we’ll focus on, is overseeing the administration of a revocable living trust

A revocable living trust is a legal document that comes with three roles: The first is the grantor (also known as the trustor or settlor). The grantor is the one who creates and funds the trust. The second is the beneficiary, who receives the assets. Finally, there is the trustee, who oversees the assets in the trust. A trustee can be an individual person, or it can be another entity, such as a financial institution. The trustee is the one who makes the decisions about the assets on behalf of the beneficiary.

 

Trustee vs. Power of Attorney (POA) 

The description of a trustee may sound reminiscent of that of a power of attorney (POA), and while there is some overlap, they’re two very different roles. A POA gives a person or group of people legal authority to make decisions on someone else’s behalf. While both allow an entity to make decisions on someone else’s behalf, a trustee does so in a far more limited capacity. A trustee may only make decisions relating to a trust or specific assets. In contrast, a POA allows someone to make a wide range of decisions. For example, an older individual may create a POA that appoints a family member to make decisions on their behalf in the case of mental incapacitation.

 

What Responsibilities Does a Trustee Have?

A trustee is a fiduciary, which means they’re required to act in the best interest of the third party whose assets they’re managing (the beneficiary). The role of a fiduciary is not just a title, it’s a legal obligation to manage someone’s assets for their benefit. The role of a fiduciary comes with four basic duties

1. Act only in the best interest of the beneficiary. As a fiduciary, the trustee must put the interests of the beneficiary ahead of their own. A few ways to do this include reading the trust document, making sure to understand the duties as outlined in the trust document, and talking to a lawyer about any questions. Trustees also need to avoid any conflicts of interest or the appearance of one. For example, let’s say you’re a trustee of a revocable living trust that includes a house. Homeowners insurance is required for the home, and it’s the responsibility of the trust to purchase that insurance. Your spouse sells homeowners insurance, so you decide to purchase the insurance from your spouse without shopping around to compare the price or coverage options of other policies. This could be a conflict of interest.

2. Manage the money and property in the trust carefully. A trustee is making decisions about someone else’s assets, and that requires careful management. Specific tasks that might come with the role include (but are not limited to): 

  • Paying bills.
  • Managing bank accounts. 
  • Making investments. 
  • Paying taxes. 
  • Purchasing insurance. 
  • Collecting rent. 

To make careful decisions, a trustee must know exactly what they’re managing. They must also ensure they pay any bills and taxes on time. Finally, if the trust includes any physical assets, such as jewelry, art or real estate, the trust needs to protect those assets, whether that means putting valuables in a safe deposit box, insuring property or changing locks on property.

3. Keep trust property separate. A trustee should never combine the assets they manage as a trustee with their personal assets or those of anyone else. As soon as money is combined, it can become confusing who owns what. Trustees should also sign in such a way that makes it clear whether they’re signing as an individual or a trustee. For example, you would sign as “Jane Doe, as trustee for the ABC Living Trust,” not just “Jane Doe.” If a trustee needs to pay any bills, they’ll also want to do this from the trust, not from their personal accounts.

4. Keep good records. A trustee is required to keep true and complete records of all the assets in a trust. Some trust documents may require sharing records with another individual or entity. Even if the trust does not include this stipulation, some states have a similar requirement. Keeping good records means not only keeping receipts but keeping detailed notes. 

 

Questions on What Is the Role of a Trustee?  

As we’ve outlined here, the role of a trustee comes with a lot of responsibility. If you’re designated as a trustee and you have any questions, it’s always best to talk to a lawyer. For information on setting up a trust, feel free to contact us to start the conversation.

 

Additional Resources:

Consumerfinance.gov, "What Is a Revocable Living Trust?"

Consumerfinance.gov, "What Is a Power of Attorney (POA)?"

Consumerfinance.gov, "What Is a Fiduciary?"

Pueblo.gpo.gov, "Help for Trustees Under a Revocable Living Trust"

 

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Topics: Financial Planning, Fiduciary

Carnegie Investment Counsel

Written by Carnegie Investment Counsel

Carnegie Investment Counsel is an Registered Investment Adviser (RIA) providing personalized financial guidance to help you preserve and grow your wealth, so you are freer to enjoy your life. As your fiduciary, we are obligated to place your investing success ahead of our returns.

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