How to Act as a Trustee

A trustee is a person, corporation or entity that has been appointed to manage money, property or interest that will be used to benefit another person. The laws on how to act as a trustee may vary in different places. If you have been selected to serve as trustee of a trust, you have some work to do in order to understand your role and to understand the trust itself.

Part 1

Part 1 of 4:

Knowing Your Role and the Property Involved

A trust is a legal creation, whereby certain identified property is held and managed by one person (the “trustee”) for the benefit of one or more other people (the “beneficiaries”). The entire arrangement is established and controlled by a document called “the trust document.” This is a sort of contract, which may or may not be connected with a person’s will. The trust document will usually identify the trustee, contain provisions for successor trustees, identify the property, define a purpose, and set guidelines for the operation of the trust and the management of the property. Your first role as trustee is to become intimately familiar with the terms of the trust document.^{[1]XResearch source}^{[2]XResearch source}
2
Discuss your role with the settlor, if possible. The settlor is the person who created the trust and first put property into the trust. In some cases, the settlor may be deceased and created the trust through a will. But in many cases, the settlor may have created the trust as a form of financial planning and may still be available to talk to. If this is the case, you should discuss the settlor’s intentions and you may ask questions about interpreting the trust document.^{[3]XResearch source}
- As a matter of law, once a trust document is written and put into effect, the written contents of the trust control your actions as trustee. If the settlor has an opinion that differs from your reading of the trust, you must abide by the trust.
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As trustee, your role is to serve the beneficiaries, but you do not act at their discretion. You may, however, discuss the trust with the beneficiaries and receive their comment and suggestions.^{[4]XResearch source}
Because a trust is a legal creation, it is controlled by certain state laws. You will need to review the laws that apply to your type of trust. This may require hiring an attorney, to help you understand what you can and cannot do as trustee.^{[5]XResearch source}
5
Obtain an assessment or audit of the trust property. If you are newly appointed, you will need to know what property you are charged with controlling and administering. If you are taking over an established trust, this may be fairly direct. If you are acting as trustee of a newly established trust, or a trust that was created through a will, you may need to do some investigating. Find out the type and value of all property that the trust owns, including:^{[6]XResearch source}
- real estate
- bank accounts
- stocks or investments
- vehicles
- artworks
- any other property
6
Review any past accounts or financial statements. You will need to review and study whatever records you can find for the trust property. Look for bank account statements, mortgage property statements, or any kind of financial statements that a prior trustee or other representative may have created. Pay attention to the dates on any such reports, and try to find the most recent reports that you can.^{[7]XResearch source}
- Suppose you find a year old report that lists a boat among the trust’s possessions, for example. This will be a clue that you need to find out what happened to that boat. Somewhere there should be a record of its being sold, stored, donated, or something. If you can find no such record, then the boat should still be in the trust’s possession, and you need to find it.
7
Obtain and study tax returns of the trust. A trust is a legal entity that may receive income. As a result, it is required to file income tax returns with the state and the IRS. You should look for those tax returns and use them to help you understand the trust’s holdings and operations. If you find a discrepancy between the tax return and the property that you have identified during your initial investigation, you need to resolve that dispute.^{[8]XResearch source}
- If the trust has been in existence for more than a year, but you cannot find any tax returns, you should check with the IRS and try to get copies. You can get copies of back tax returns from www.IRS.gov.^{[9]XTrustworthy SourceInternal Revenue ServiceU.S. government agency in charge of managing the Federal Tax CodeGo to source}
- It if becomes evident that no tax returns have been filed, you may need to file them. The trust could incur penalties and interest if returns were required but not filed. You may need to consult with an accountant or tax attorney on this point.
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Part 2

Part 2 of 4:

Dealing with Beneficiaries

1
Identify the beneficiaries of the trust. For some trusts, identifying the beneficiaries is as simple as reading the trust document, and the beneficiaries may be identified individually by name. For other trusts, like many charitable or benevolent trusts, the beneficiaries may not be individuals but are rather groups of people or members of the general public. In cases like this, you may need to identify the types of people you are expected to be serving.
- For example, the York Museums Trust, in York, England, exists for the purpose of operating cultural museums for the benefit of the general public. The beneficiaries, therefore, are members of the public who attend cultural museums.^{[10]XResearch source}^{[11]XResearch source}
- Another example, the Artist Trust, in Seattle, Washington, exists to support artists and provide grants to support new artworks. The beneficiaries of this sort of trust would be members of the artist community in and around Seattle.
2
Communicate regularly with the beneficiaries. As a trustee, you are primarily responsible to the beneficiaries. As noted before, the beneficiaries may be readily identifiable individuals, like the family members of the trust settlor. Beneficiaries may not be as easily identified, and could include the general public.^{[12]XResearch source}
- If the beneficiaries are one or more individuals, your level of communication may be quite informal, consisting of telephone or email updates, and general ongoing dialogue between you and them.
- If the beneficiaries comprise a less identifiable group, you will need to draft an annual report to show the operations of the trust, its income and expenses, and any plans for the immediate future.^{[13]XResearch source}
The trust document should contain provisions about distributing trust property to the beneficiaries. This could as simple as a single distribution to eliminate all the trust property. Or it may mean that you make ongoing regular payments to some named individuals. Or the beneficiaries could be general classes of people who get less tangible benefits from the trust.
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Part 3

Part 3 of 4:

Executing Your Duties as Trustee

Your first requirement as trustee is to perform the wishes of the settlor, as defined in the trust document. Trusts exist for a wide range of purposes. If your trust was the creation of a person’s will, then your role may consist of the very limited purpose of distributing assets to the beneficiaries, and then closing the trust. On the other hand, some charitable trusts are established to last perpetually, to make investments and conduct business, or to care for certain properties.
2
Make and manage investments. The trust document may not clearly specify that you are instructed to invest the trust property. However, as a trustee, you are generally expected to act in the best interest of the trust and its beneficiaries. If the trust owns a great of property, cash or other liquid assets, the “best interest of the beneficiaries” would probably be served by investing the money somehow.^{[14]XExpert SourceDmitriy Fomichenko
Financial PlannerExpert Interview. 30 June 2020.}
- Unless you are a trained and qualified financial adviser, you should consider hiring someone to handle this part of the trust’s business.^{[15]XExpert SourceDmitriy Fomichenko
  Financial PlannerExpert Interview. 30 June 2020.} Make sure that the language of the trust, or any applicable state law, authorizes you to pay for such services out of the property of the trust.
As the trust continues to operate, you will be responsible for regular reporting. Some of these reports may be required by state or federal law, such as filing tax returns. Some reports will be required by the trust document itself, such as an annual report to the beneficiaries.^{[16]XResearch source}
4
Be careful not to exceed your authority. As trustee, you often will have wide latitude to decide what actions are in the best interest of the trust and the best interest of the beneficiaries. You may usually pay yourself a reasonable salary and hire others for doing reasonably necessary work as well. However, if you exceed your authority, you run the risk of being removed and possibly facing legal challenges for misusing trust property.
- If you ever have questions about whether a certain action is allowed under the authority of the trust, you should consult with an attorney. Paying an attorney for an opinion about your authority of trustee would be a reasonable expense of the trust.
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Part 4

Part 4 of 4:

Transferring Responsibilities to Others

1
Hire a corporate trustee. You may decide, upon reviewing the demands of the trust document, that the work is more than you want to do alone. One option in this situation is to hire a financial company to do the work of the trustee. You would retain the title of trustee, but you would hire an agency to manage the trust for you.^{[17]XResearch source}
- You can find such companies by searching for trust managers online, or by asking friends, colleagues or other professionals in the financial world. Try to target your decision around the specific objectives of the trust.
2
Review the successor trustee language of the trust. If you choose not to serve as trustee at all, review the language of the trust document. It should contain language about naming a successor trustee. Follow its directions and notify the person who is identified as successor.^{[18]XResearch source}
- For example, the trust document should have a provision that says something like this: “I appoint John Doe to serve as trustee. In the event that John Doe is unable or unwilling to serve as trustee, I appoint Mary Smith to serve as successor trustee.”
Because the trust creates a legal obligation by appointing you as trustee, you need to make it clear to everyone that you are declining the role and do not accept the obligation. You should write a letter, addressed to any identifiable beneficiaries or to the settlor, clearly stating that you decline the appointment to serve as trustee. Include a date, so there is no confusion regarding any actions that should take place.^{[19]XResearch source}^{[20]XResearch source}
You should review your state’s laws on trusts and trust operations to find out if you need to take any further action to decline or terminate your appointment as trustee. You may be required to file your withdrawal with the probate court or the secretary of state’s office, for example.^{[21]XResearch source}
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How can I take good care of the funds as a trustee?
Dmitriy Fomichenko
Financial Planner
Dmitriy Fomichenko is the president of Sense Financial Services LLC, a boutique financial firm specializing in self-directed retirement accounts with checkbook control based in Orange County, California. With over 19 years of financial planning and advising experience, Dmitry assists and educates thousands of individuals on how to use self-directed IRA and Solo 401k to invest in alternative assets. He is the author of the book "IRA Makeover" and is a licensed California real estate broker.
Dmitriy Fomichenko
Financial Planner
Expert Answer
You can take good care of the funds by investing them wisely. Learn about alternative investments and take the help of financial experts to do so.
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Tips

Keep accurate records.
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Ask an attorney to review all documents before signing.
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Warnings

Unauthorized purchases, withdrawals or sales could be illegal. You always need to act in accord with the directions of the trust document.
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You are entitled to a reasonable salary as trustee and to be reimbursed for expenses. However, you need to be able to account for any such payments.
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A trustee has a legal duty to protect the trust interest.
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