What does a trustee do?
“Trustee” is a legal, financial, and fiduciary role, much of which is focused on managing other people’s assets. Trustees are held to a high legal and ethical standard under the law. Their actions may be subject to review and enforcement by the Grantor (if living), beneficiaries, Successor or Co-Trustees, the Court, the IRS and state tax entities, and law enforcement.
Trustees are appointed to carry out the directions laid out in a Trust as well as the federal and state legal and tax requirements that apply to Trusts and Trustees. They are tasked with managing assets held in Trust, legal and tax paperwork, deadlines, working with professional advisors such as lawyers, CPAs, and financial advisors, and sometimes dealing with court proceedings.
Thus it is critical to choose a Trust that can be trusted to follow your wishes and directions, do a good job managing assets, follow the law, work well with professional advisors, paperwork, courts, and deadlines, and seek qualified advice when necessary or advisable.
If you want more information about what a Trust is, check out “Will vs Trust in California: What’s the Difference and Which Do You Need?” and coming soon, “What is a Trust?”
Trustees can and should work with professional advisors. They are not expected to be legal or tax experts. They are expected to know when to seek advice to complete their job, follow the law, file taxes, and manage assets. Professional advisors make it more likely that they will not only do so, but in a timely manner.
While much of the following applies to a variety of types of Trusts, here and throughout my website I am talking about Revocable Living Trusts, unless otherwise specified. This is the type of Trust most of us benefit from.
Below I’ll break down some different scenarios in which a Trustee may serve, as some of the details of a Trustee’s work vary depending on whether Grantor AKA Trustor (the person who appointed them) is living, incapacitated, or deceased. But first, here is some general information about what a Trustee takes on:
Find and collect assets, prove their authority to gain access to assets, sort through physical and digital records, make phone calls, send emails, sign and mail documents.
Meet with advisors and other professionals, make decisions within the confines of the Trust and the law, and carry them out.
Find bills and debts; manage insurance, utilities, credit cards, social security, etc. Figure out which can and should be paid and how to best do so. Often, while not legally required, the practical reality is that they end up fronting costs out of their own pocket until assets can be accessed.
File and pay taxes, including any back taxes.
If the Trust owns a home, deal with property taxes, possibly a mortgage (quickly, before the home goes into foreclosure), clean it out, sort through everything that may be valuable or sentimental, deal with anyone else who may have a right to valuable or sentimental things, and likely prepare the home for sale.
Deal with family members, pets, and drama.
Keep careful bookkeeping records of money coming in and out and provide annual accountings to all those entitled to such information.
All while being subjected to questions, possible distrust, legal and personal financial liability and the potential to get sued for taking all of this on, even if they did a great job.
While Trustees have some discretion in certain parts of their work, such as who to hire and whether and when to sell the house or liquidate other assets to pay for care or bills, Trustees do NOT have discretion in other specifics.
The directions laid out in the trust are legally binding. Trustees do not decide who inherits the assets (except in very rare circumstances where the trust directs them to make certain choices). They cannot ignore the instructions laid out in the trust. They must provide certain information and notices to those people and entities named in the trust, anyone that would have inherited had there not been a will or trust, and others. They must meet certain legal, tax, and retirement account deadlines, and there is a requirement that the work will be carried out in a timely manner. And Trustees cannot use Trust assets to benefit themselves in any way that is not explicitly directed in the Trust, or spend Trust assets in any way that is not legally required or explicitly directed in the Trust or state or federal law.
The details of a Trustee’s job may vary depending on whether a) the Trustee is serving as Trustee of their own Trust and assets; b) serving as Trustee for someone else who is living and is a co-Trustee; c) serving as Trustee for someone else who is incapacitated; d) serving as Trustee for someone else who has died.
Serving as trustee of your own revocable living trust during your lifetime:
This is the simplest scenario. If you are Trustee of your own Revocable Living Trust, managing your own assets, you are not required to give yourself notice or an accounting, and you do not have to inform anyone else of what you’re doing with your own assets (except perhaps your spouse as co-owner and co-Trustee).
During life / incapacity: when one person is serving as trustee and managing assets for someone else who is incapacitated:
This can be one of the most difficult situations, and is often the least considered part of the picture when creating the Trust and planning for the future.
Record-keeping is critical. The Trustee must be prepared at any time to show that all Trust assets have been managed and used as the Trust directs. Every dollar in and out must be documented. There must be no room for accusations that the Trustee used funds for their own benefit. If the Grantor/current beneficiary of the Trust is elderly, the Trustee should be aware of what constitutes elder financial abuse, even if they would never knowingly do such a thing.
The Trustee needs to be extremely careful to keep their own expenses and assets entirely separate from the Trust’s expenses and assets. The Trust must be followed to a T, including prioritizing the current beneficiary(ies) of the Trust, disregarding any pressure from contingent beneficiaries to prioritize conserving assets for their later inheritance instead of the care of the Grantor or other current beneficiaries. Assets cannot be distributed to the Trustee unless explicitly directed to do so in the Trust. Expenses authorized/directed by the Trust should be paid directly by the Trust and not distributed to the Trustee or anyone else to then take care of the expenses.
This situation may continue long term, while dealing with medical costs and emergencies, and long-term in-home or residential care. Pet care may also need to be arranged. While the most common scenario that comes to mind is with an elderly Grantor and beneficiary, this situation could arise at any age.
After death: when someone else is serving as Trustee after the Grantor has died.
This situation involves most or all of the above considerations, additionally including not only the distribution of assets and winding up of the Trust estate within the year following the Grantor’s death, but also the potential for long-term management of Trust assets for a beneficiary who is young, has special needs, or for any reason the Grantor has directed that the Trustee shall manage the assets for one or more beneficiaries for many years or indefinitely.
If all goes well and efficiently, this process will commonly take 6 months to a year, even if there are no ongoing Trusts. It can take longer if there are real properties, businesses, or a larger number or complex nature of assets.
In addition to the above-detailed tasks, the Trustee will likely need to deal with notifying credit bureaus of the Grantor’s death, obtaining and distributing death certificates.
Before the assets can be distributed according to Trust directions, nearly everything else must be completed, and the long wait can increase the drama coming from family members and other beneficiaries who aren’t aware of all of the work the Trustee is having to put in before distribution can happen. Then an accounting must be provided to all those entitled, to the extent not waived, and it is best practice to have everyone sign off before any distribution takes place. A reasonable reserve may be kept to cover final expenses, but distributions should not be made prematurely. The Trustee may be personally financially responsible for expenses such as taxes if they distribute assets too early, or may be left without the financial ability to defend their actions on behalf of the Trust, even those that were well within legal requirements, if these steps aren’t properly completed.
What does a trustee NOT do?
The same person who is serving as Trustee may also be appointed to other roles, but the role of Trustee does not include the following:
A Trustee does NOT manage assets that are not owned by the trust, use the Grantor’s credit cards or account access credentials. The Trustee generally does not handle or have access to assets that are not in Trust, either because you’ve chose not to transfer them to your trust for good reason (such as cars or retirement accounts) or because you failed to do so when you should have (usually banks accounts or homes). Sometimes a Trustee may work to transfer assets to your trust when there is documented, sufficient evidence to support this, but the Court must usually be involved in this scenario.
During the Grantor’s lifetime the Trustee may work with the Agent under a Power of Attorney to deal with assets (especially cars and retirement accounts, which generally should not be in your trust) and bills outside of the Trust. After the Grantor’s death they may work on their own or with the Executor to bring assets into the Trust that were not properly transferred to the Trust (or valid beneficiaries designated) before the Grantor died. But if there is not documentation to support moving these assets into Trust, the Executor may need to conduct a probate court proceeding and even distribute the assets differently than your Trust directs. This is one of the biggest reasons it’s so important to have a well-drafted trust and legal advice from a lawyer experienced in trusts and estates, and ensure assets get into Trust when they should.
A Trustee also does not make health care or personal care decisions, though they may be involved in using Trust assets to pay for them.
The upshot is that serving as Trustee is a big responsibility.
Working with an experienced estate attorney to create a clear, thorough, organized estate plan for the Trustee to carry out helps a lot. Organizing paperwork, clearly documenting assets and debts, and ensuring assets are owned by the Trust also helps a lot. But it is still a big job.