What does it mean if you’re a trustee? Every trust must have a trustee to carry out the wishes of the person who created the document.
If you’ve been named for this position, or want more information on choosing a suitable candidate, it’s important to understand the obligations of the role. Otherwise, you might miss something essential and face legal or financial consequences.
Failing to create a trust can leave your family unprotected against expensive and complicated probate proceedings. Below, we’ll cover some of the duties that a trustee will be responsible for, along with other key information for this position.
Executors vs. Trustees
What is the difference between a trustee and an executor? These roles are similar in that they both are obligated to take care of the estate/trust beneficiaries. An executor liquidates assets, whereas someone in the trustee role tends to manage the assets. Oftentimes, they’re the same person fulfilling a different duty. Let’s look a bit closer at each role.
Executors carry out the wishes that you outline in your will according to the law. Because of this, they have an obligation to you, the heirs in your will, and the laws regarding your estate. Some of the tasks they’re responsible for (among others) include:
- Distributing your estate according to your will
- Assessing the value of your estate
- Gathering your assets
- Assessing your liabilities and debts
- Making sure you have no unpaid debts
- Taking care of inheritance taxes
For certain possessions or gifts of assets, the executor may need to transfer the money or asset to the named beneficiaries. They’ll also need to transfer any residuary estate to the trustees, if applicable. Residuary estate refers to the remaining assets in a person’s estate once there are no remaining fees and gifts are already given out. The executor’s role is over once they’ve taken care of these tasks.
What is the role of a trustee? If assets in your estate must be held in an ongoing trust, the executor will pass them to the trustee(s). The trustees will then legally own the assets and take care of them as you define in the terms of the trust. Trustees have a variety of duties and must act according to the trust and the law. Duties and responsibilities of the trustee include:
- Acting to benefit the trust beneficiaries
- Issuing account statements to beneficiaries
- Acting promptly and reasonably
- Not making a personal profit from the assets
- Distributing trust assets
- Managing property
- Using capital
Trustees must ensure the assets they’re handling are under their control and that they understand the trust terms. If applicable, they will need to invest the assets in the trust to preserve them and make them productive for beneficiaries. They’ll also need to make decisions according to the trust involving discretion over when heirs receive their payments.
Some people will appoint the executors to also act as their trustees and this is standard practice for many wills. Keep in mind that if you hire a professional as an executor, you may also be choosing them as a trustee, which could come with extra costs.
What is a Trustee to Trustee Transfer?
This type of transaction occurs when you move your retirement assets from one custodian or institution to another. During a trustee to trustee transfer, the IRS doesn’t treat the assets as Reportable. So, no taxes or penalties incur at this time. This process comes with its own rules and limitations, so make sure you ask a tax attorney for help if you have any questions.
Should You Accept the Role of Trustee?
Many times, the trustee is a relative, close friend, beneficiary of the estate, or some type of advisor. In some cases, saying yes to taking on trustee duties isn’t the right thing.
While you may feel obligated to say yes out of politeness, this is something you should carefully consider beforehand. Here are some scenarios that would make it best to decline the role of trustee:
The job will demand too much of your time: If you’re already very busy and you think that fulfilling trustee obligations would take more time than you have, it may be best to turn it down. In this case, there might be someone who lives closer to the beneficiaries, has more financial know-how, or is otherwise better suited for the job.
You aren’t on good terms with the beneficiaries: As mentioned before, being a trustee involves staying in contact with the beneficiaries. If you don’t get along well with them, taking this position could add considerable tension to your life.
The trust maker was disorganized: Becoming trustee for someone who wasn’t very organized with their legal and financial matters could be a headache. If you aren’t super familiar with what they owned, the job may be more hassle than you can take on.
You don’t want the position: Perhaps the simplest question you should ask yourself when deciding whether or not to accept the trustee position is whether you want it or not. Many people don’t want the position but take it out of a sense of obligation.
Politely declining the role is better than accepting it when you aren’t in a good position to say yes. Only agree to this arrangement if you feel a sense of duty to the person who appointed you trustee and can handle the responsibilities.
Can You Receive Help as a Trustee?
If you take on this role, you’ll be responsible for the assets in the trust. But that doesn’t mean you have to fulfill these obligations on your own. Since you have to consider taxes, following the law, staying in touch with beneficiaries, and more, it’s best to seek legal counsel. While you may be able to handle most of these tasks, talking to estate planning attorney is still a good idea.
If you still have questions about what exactly a trustee is in a will, how to make sure you’re following all of the rules with your role, contact an expert today.
Call our Arizona Estate Planning team at (480)467-4325 to discuss your case today.