The board of trustees definition is a group of individuals who oversee the administration of a non-profit organization such as a charity. They are appointed, not elected, and also have the power to both appoint and dismiss senior management personnel.

What Is a Trustee?

A trust is some type of property that is set aside by an individual or a corporation for the benefit of another individual. It must be managed according to the instructions provided in the document that formed the trust. The person who manages that property is called a trustee. 

The person who will benefit from the trust is called the beneficiary. This person is typically the owner of the property or another person whom the property owner designates as the beneficiary. 

Trustees may be corporations as well as individuals. The purpose of having a trust is for investments, and there are tax advantages to this arrangement. They also serve to keep the owner from spending the trust property. This is advantageous if the beneficiary is not competent to manage their own finances due to mental illness, immaturity or young age, or is simply irresponsible. 

Trustees have responsibilities regarding the trust's beneficiary. These legal requirements are covered in state statutes. However, a state's court opinions, also called case law, is mainly what is used to address a trustee's duties. Trustees are also known as fiduciaries and are bound by law to act in the beneficiary's best interests as long as such actions are legal.

The beneficiary relies upon the trustee to maintain control of the property, even though the beneficiary owns it. As fiduciary, a trustee usually knows a lot about investments and how trusts operate. Beneficiaries typically do not have this knowledge. 

Trustees have the following responsibilities:

  • Provide accurate reports to the beneficiary to keep them updated about all circumstances related to the trust.
  • Make sure the trust's terms are fulfilled as indicated, such as how the property will be distributed to the beneficiary and when, and also what types of transactions are allowed.
  • Invest trust property, unless prohibited by state law, and use their best judgment in doing so. 

Trustees are also appointed in bankruptcy cases to manage the money of the individual who filed bankruptcy. These trustees are typically paid by the state, whereas trustees who do this service for private individuals are paid either by the person who set up the trust or from the trust itself.

What Is a Board of Trustees?

When the beneficiary of a trust is a charity, university, or other non-profit organization, it is managed by a board of trustees. The whole board is responsible for all consequences of the decisions that are made; this is called the doctrine of collective responsibility. As the organization's governing body, the board of trustees tries to make sure all of the stakeholders' best interests are addressed. 

A board of trustees typically consists of five to 20 individuals. These people may be employed elsewhere. However, senior management of the nonprofit organization may also serve on the board of trustees. The board's responsibilities and duties are similar to that of a corporation's board of directors

Who Uses a Board of Trustees?

One type of entity that uses a board of trustees is a university endowment. An endowment is an investment portfolio. The board of trustees can choose to invest these assets in a variety of different funds, or in one single account managed by one individual. 

Mutual savings banks also have boards of trustees. They are dedicated to the best interests of the bank's customers, including those who make deposits, borrow funds, and live in the community. They need to make sure all the deposits are invested in secure accounts, depositors receive interest as agreed, and funds are available to customers when they want to withdraw them.

Trustee Duties

The board of trustees works with the president of the organization where they serve, along with administrators and managers, to either approve or reject policy decisions. They make plans for the future and make sure the organization follows the budget. 

It is vital that the board and the organization's management have excellent communication with one another so that each has an accurate view of what the other is doing. The board of trustees selects the organization's president. It also evaluates their performance and may replace them when needed.

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