The trustee will be the owner or holder of legal title of your trust property and the manager of the trust. This is known as a fiduciary role. They are responsible for all the decisions, choices, and transactions concerning the trust. They should be held to an objective standard for the management of the trust property (duty of prudence) that may include investing assets in a way to assure reasonable growth with minimum risk, unless you specified otherwise.
There are subsidiary rules to guide their management that include:
Your choice of trustee may be the most important decision about your trust.
You should look for certain qualities in your trustee.
You may choose a professional trustee such as an attorney, but this is more expensive up front.
You may choose co-agents with similar or different responsibilities. However, you must make plans for times when they might disagree. This may include giving one trustee the final say or requiring that all decisions must be unanimous and made by compromise if necessary.
It is best to name a back-up or successor, if your:
The trustee will retain the role as long as they are able to. The successor trustee will assume power over your revocable living trust if you become incompacitated or from the beginning if you prefer an irrevocable living trust. The trustee will assume control over any trust existing after your death. It is a lot of responsibility for the successor since they are liable for any debts or liabilities that the trust incurs.
Many of the powers of a trustee are regulated by state law and differ from state to state. If you have assets in different states, make sure the action is allowed in that state.
Any duties you want to specify for successor trustees should be explicitly detailed in the will or trust document, such as what investments to make, when and how to distribute income and principal, or what reports you need to make to beneficiaries. If you have co-trustees, the more details you provide the less chance there is for disagreement.
Any successor or co-trustee must manage the trust carefully, skillfully, cautiously (duty of providence), and impartially. Other duties of the successor trustee will depend on whether they are managing a living trust for you or a testamentary trust for your beneficiaries.
Although they may be trying to follow your wishes, they are managing the trust in the interests of you or your beneficiaries (duty of loyalty) and may need to resolve conflicts. Most trusts require them to inform you and/or your beneficiaries of all transactions associated with the trust.
Your chosen trustee(s) will need to be familiar with the trust and its provisions, know where the trust document and other important papers are located, have access to credit card information, be given username and passwords to all sites, and have shared access to safety deposit boxes.
If the trustee or trustees do not perform their duties, the trust will become passive and ownership (legal title) will pass to the beneficiaries. If the trust has been mismanaged and assets are improperly disposed of, the beneficiaries can recover them if they are traceable back to the trust. For example, if a trustee wrongfully sold or gave away trust property, the beneficiaries can recover it if they can provide the proof.
There are various tasks a trustee should be expected to fulfill in their role. The number of tasks increases if the trust is revocable since they would be allowed to alter the trust in addition to managing it.
You will manage your trust while you can, but once your successor becomes trustee it becomes their’s to manage. In many cases, they will need documentation of your incapacitation from your healthcare provider.
If your successor trustee assumes their role as trustee due to a temporary disability you can resume your role as soon as you are able to without involving the court.
If your trustee is taking over because you have become incompacitated, they may need to:
The role of the trustee begins after your death. The various tasks they would be expected to fulfill as trustee depend on the goal of the trust. If it is to transfer the trust to the beneficiaries, the trustee would manage the trust only as long as it takes to disburse the trust and close it down. If it is to manage the trust for the beneficiaries, the trustee would manage to trust for the length of time specified in the trust (may be a discrete time, until the beneficiaries reach a certain age, or in perpetuity). They may need to contact an attorney to review the trust and process.
After your death your trustee will be responsible for organizing, protecting, and paying off debts and taxes for your estate.
After the estate is organized and debts paid, the trustee must manage the estate.
Although the trustee theoretically can’t delegate tasks they could reasonably do themselves, they are allowed to hire financial advisors to make investments, accountants to handle taxes and bookkeeping, and lawyers to advise on legal matters if necessary.
Trustees are entitled to be compensated for their role in managing your estate. Whether they will take the fee depends who you choose. Professionals will charge a fee and other non-family trustees will likely expect one. Family members often do not accept compensation, but that may depend on the work involved, their relationship to you and your beneficiaries, and whether they have been chosen for their professional expertise. The fee is taxable income for the trustee, so if they are a beneficiary a fee may not make sense because they may be inheriting money tax free and not want to pay income tax on the income that comes out of the estate for the trustee’s compensation.
The fee amount is usually established in the trust document and the money comes from the trust itself. It is considered a tax deduction for the trust.
Banks, trust companies, and law firms will typically charge a percentage of the estate — especially if it is a large estate. This is often a one-time 1%-2% for estates settled within a year or yearly fee of 1%-2% for the duration of long-term trusts. Others may bill by the hour for the time they spend managing the trust, by a percentage of each transaction made on behalf of the trust, or a flat fee. In many cases, these fees are determined by the amount of work involved and the complexity of the trust.
Some states have specific rules for trustee fees that will determine the fee if not specified in the trust document. Most states will have rules for executor fees that may be used as a guideline if there are no rules for trustee fees.
When hiring professionals you may have little input into the fee, but it helps to know a few details in case you can haggle. These details may also help you if a family member or friend is your trustee.
Determining what is reasonable can be difficult, but most agree that 1% of the estate per year is a good goal when there is a choice. Court generally consider an annual trustee fee of 1% to be a fair minimum compensation.
The courts could become involved if your trustee petitions them for a higher rate when the estate is complicated enough to require a lot of extra time and work. Consulting with a professional experienced with trust work may be able to help you determine appropriate fees based on the circumstances.
You may want to start with a yearly fee that’s 1% of the trust value (or other amount or percentage professionals typically charge in your area) and adjust it based on the following factors.
Any qualified beneficiary should be given the opportunity to object if the proposed annual amount of compensation is more than 1%. Therefore, it is important to give them written notice.
The beneficiaries should be notified of the amount and timing of trustee’s compensation and any time this changes.
In addition to fees, trustees are entitled to reimbursement for any out-of-pocket expenses related to the management of the trust such as travel expenses, storage fees, taxes, insurance, or other expenses.