Every trust has three components, a Settlor (a/k/a donor, trustor, or grantor), a Trustee, and a Beneficiary. The Settlor creates the trust and transfers the asset to be held in the trust to the Trustee. The Trustee is an individual (or an institution, such as a bank) who has legal capacity to act as a fiduciary with regards to the trust. To act as a fiduciary means that the Trustee must act for the benefit of the beneficiaries of the trust, and a fiduciary is held to the highest standards of care in regards to his or her responsibilities. Lastly, the beneficiary is the person(s) who benefits from the trust.
The most confusing component is the Trustee. If a family member or nonprofessional is named as Trustee of a trust, the first question is ‘What do I do as Trustee?’ The main focus of the Trustee is to administer the trust property for the benefit of the beneficiary(ies) in accordance with the terms of the trust, and according to the Settlor’s intent. The trust instrument dictates how the Trustee should act. The trust instrument directs who will benefit from the trust, how the assets are to be distributed to the Beneficiary, the reporting obligations from the Trustee to the Beneficiary, and the scope that the Trustee has to invest the trust assets.
The most important duties of the Trustee are the duty of loyalty, the duty of skill and care, duty to communicate, duty to provide information, duty to segregate property, duty of impartiality of current and future beneficiaries, and duty to defend and enforce claims of the trust. A summary of the meaning of these duties is as follows:
It should be noted that a Trustee has the power to delegate, which means that if there is something that should be handled by a professional, the Trustee must seek out assistance from a professional. For example, if the trust was sued by another party, the Trustee should hire an attorney to defend the trust against the suit. In addition, all trust entities must comply with tax reporting and payment obligations, the Trustee should consult with a tax professional.
Accepting a Trusteeship is responsibility that should not be taken lightly. This summary is a starting point of the duties of a Trustee, and does not encompass everything that Trustees should know about their roles. All Trustees should do their own due diligence to understand their obligations and relationships.
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