Trustees Overview

The responsibilities and liabilities of trustees are the duties and obligations that come with the position of trustee. Trusts are documents similar to wills that hold assets of value for another party’s benefit. The trustee is an individual who helps operate a trust on behalf of another party, who is known as the beneficiary. Trustees should be parties of great responsibility and sound judgment, in keeping with the duties that they must take on, that may include the management of assets of great value, the distribution of funds to beneficiaries, and the ability to act in the best interest of the trust, not themselves.

Responsibilities of Trustees

Trustees are entrusted with managing the assets of other parties, and so they should be able to act with the highest competence. Typically, a trustee’s responsibilities to their trust will pertain to the following topics:

  • Finances. A trustee’s main responsibility is to manage a trust’s assets responsibly. This means investing trust assets in a conservative manner, thereby to achieve reasonable growth while incurring minimal risk.
  • The Trust’s Term. The trustee must follow the term of the trust, which is the trust’s guiding instructions for management, including how and when distributions and reports are to be made to the beneficiaries.
  • Investment Standards. Along with making safe, low-risk investments with a trust’s assets, a trustee must also invest with not only the current beneficiaries in mind, but future ones, as well. They should not only think about the present state of the trust, but where they want it to be in 10 or 15 years.
  • Distributions. If a trustee has the discretion on when or how to make distributions to beneficiaries, they must then be an astute judge of the beneficiary’s current and future needs, taking into account other sources of income, if there are any, as well as the needs of other beneficiary’s, too. If this duty is in the hands of the trustee, they must have the ability say no to requests from the trust, if they deem this to be in the best course of action.
  • Accounting. A trustee must be able to track all income, distributions, and expenditures related to the trust. In most cases, data related to this must be distributed to the beneficiaries annually.
  • Taxes. A trust may have to file a tax return and pay taxes, depending on if it is a irrevocable or revocable trust. If taxes are necessary, the trustee will have to provide financial records for the benefit of the accountant.
  • Delegation. The trustee should not delegate duties that they could be reasonably expected to do themselves. However, they may hire advisors, accountants, and lawyers if they feel this is in the best interest of the trust.

Breaches of Responsibility for Trustees

There are a number of ways a trustee may fail in their responsibility to act in the best interest of the trust, and these include:

  • Making purchases for the trust or sales from the trust. This is considered unacceptable because it is believed that most trustees would have difficulty exercising true impartial judgment. Some would abuse their position to turn a profit for themselves, and even if not, they still may not exercise the best judgment in such affairs. Maintaining a blanket rule eliminates this problem.
  • Accepting bonuses or commissions from third parties. Some outside parties may have an interest in influencing or manipulating the actions of trustees with monetary or other gifts. Therefore a trustee should not accept any such benefits.
  • Engaging in business that competes with any business owned by the trust. The trustee is bound to act in the best interest of the trust. Taking actions that would stand to benefit competitors of assets of the trust would violate this duty.
  • Becoming compromised by a conflict of interests. A trustee is to manage the trust so that it benefits all beneficiaries. If, for example, a trustee was also a beneficiary of the trust, and they administered it in such a way to benefit themselves, then there would be a conflict of interest. Trustees must be impartial and objective in their dealings.

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