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Retirement

What Is a Trustee?

Who do you trust?

It’s not an easy question to answer. Sure, trusting someone to buy the right stuff at the grocery store is important. But trusting someone to give away your lifetime savings according to your final wishes? Those people are rare. They’re called trustees, and they’re held to a higher standard of trust.

Let’s dig into exactly what that means and talk about what a trustee is, what they do, how they’re picked and all the different types of trustees.

  1. What Does a Trustee Do?
  2. How Are Trustees Assigned?
  3. Types of Trustees

1. What Does a Trustee Do?

Before we get into the responsibilities of a trustee, let’s start with a simple answer to the question, What is a trustee? A trustee—either an adult person or an institution—is the custodian and distributor of the asset(s) inside a trust.

The trustee usually takes over a trust after the person who created the trust (aka the trustor) dies or is no longer legally competent to manage it. But some people, choose a trustee to manage the trust for them while they’re still alive. (We’ll talk more about how and when trustees are chosen later.)

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Now that you know what a trustee is, we can answer the question, What does a trustee do? The simplest answer is that a trustee manages and administers the finances of a trust according to the trust’s instructions.

That often includes preparing records like financial statements and tax returns and communicating with the trustor or the trust’s beneficiary(s). In other words, everything the trustee does with the trust’s asset(s) must be recorded, transparent and in the best interest of the trust and its beneficiary(s).

You might be wondering who picks the trustee. Let’s look at that next.

2. How Are Trustees Assigned?

Trustees are usually chosen by the trustor—the person who creates the trust. Most people pick a friend, an adult child, an attorney, a bank or a company. For living trusts, the trustor often assigns themselves as the trustee while they’re still alive and legally competent.

You can assign a trustee to handle all kinds of financial duties, including navigating a bankruptcy, managing a charity or a trust fund or certain types of retirement plans. We’ll go over each type in a minute, but first let’s talk about how to pick a trustee.

When deciding who would be a good trustee for your estate, pick someone you think would be able to set aside their personal goals to follow your trust’s instructions exactly. Obviously, that person should be someone you have complete faith in and has good common sense. You may also want a trustee that has a certain type of expertise, like managing investments or charities.

3. Types of Trustees

Part of the beauty of passing on a legacy to our loved ones is that each legacy is different—everyone defines wealth differently. That’s why a trustee’s role isn’t one-size-fits-all. Let’s go over each type.

Administrative Trustee

Administrative trustees are the easiest of the bunch—they do just what the name implies. They administer the distribution of trust asset(s) according to the specifics of the trust agreement. For example, a grandmother named Bess might pick an administrative trustee to manage the trust money she earmarked for her grandchildren’s education.

Independent Trustee

An independent trustee has no interest as a beneficiary or as a relative of a beneficiary of a legal trust. In theory, all trustees should be independent. Right?

Right! But that’s not always the case. Suppose Bess—the trustor—names her son Dave as the trustee of her trust that sets aside money for her grandchildren’s education. Her son doesn’t directly benefit from the trust, but since the trust provides money for the grandchildren’s education, he doesn’t have go into debt to pay for his kids’ tuition. So technically, Dave’s not an independent trustee because he indirectly benefits from the trust.

The key here is understanding that to qualify as an independent trustee, the named trustee cannot have even a remote possibility of benefitting from the trust.

Investment Trustee

Some people hire investment trustees to manage and grow the investments inside a trust. So, Bess might choose an investment profession as her trustee to manage grow the trust fund for her grandkids’ education until they’re ready to use it. 

Charity Trustee

This type of trustee manages a charitable trust in place of the donor. They’re responsible for making sure donations are made correctly, doing strategic planning, raising funds and setting policies. Charity trustees typically have experience overseeing charities.

Corporate Trustee

Corporate trustees are companies that are hired to manage a trust. They’re usually financial firms like banks or investment companies.

Typically, a trustor names a corporate trustee because they don’t have a friend or family member they can trust to manage their assets properly, especially if the trustor has a lot of assets and investments inside the trust.

Bankruptcy Trustee

This one’s not exactly uplifting, but necessary in some cases.

A bankruptcy trustee is appointed by the Department of Justice to oversee a debtor’s estate in a bankruptcy case. Remember earlier when we said trustees are assigned to satisfy the needs of the trust? Bankruptcy trustees are a perfect example of this because they’re assigned by a court to manage debtor demands made against the trustor’s asset(s). Along with the court’s permission, bankruptcy trustees distribute trust money to creditors after the trustor passes away.

Even though each type of trustee plays a different role, they all have one thing in common: the best trustees are the ones that fit the trustor’s needs.

Work With a Professional

The truth is, most people won’t need a trust as part of their estate plan. A simple will is perfect for about 95% of the population. So unless you have a really, really large estate, you need a will—like right now. RamseyTrusted provider Mama Bear Legal Forms will help you create your will in just a few minutes. It’s simple to do—and legally airtight!

Contact the experts today!

Ramsey Solutions

About the author

Ramsey Solutions

Ramsey Solutions has been committed to helping people regain control of their money, build wealth, grow their leadership skills, and enhance their lives through personal development since 1992. Millions of people have used our financial advice through 22 books (including 12 national bestsellers) published by Ramsey Press, as well as two syndicated radio shows and 10 podcasts, which have over 17 million weekly listeners. Learn More.

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