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Trustee Definition

True Tamplin

Written by True Tamplin, BSc, CEPF®
Updated on June 14, 2022

Being a trustee is a huge responsibility. It’s not just about the time commitment but also the responsibility that comes with it. 

If someone has asked you to be their trustee, you need to know what it entails before accepting or declining the offer.

What Is a Trustee?

A trustee is someone who has been given the legal responsibility to manage another person’s property or money. 

While trustees are legally required to act in the best interest of their beneficiary, they can also receive compensation for administering that trust.

Trustees are given the power to act on behalf of their beneficiaries. They are responsible for making decisions about how money or property is used, invested, and distributed. 

Trustees also have an obligation to make sure everything in the trust will be available when the beneficiary needs it.

Duties & Responsibilities of Being a Trustee

The duties and responsibilities of being a trustee can be extensive. It’s essential to understand what you’re getting into before accepting the role. Otherwise, it can lead to significant legal consequences if things go wrong.

Invest Funds Prudently

Trustees have an obligation to make sure everything in the trust will be available when the beneficiary needs it.

Act as a Fiduciary

A trustee has a duty to act in the best interest of their beneficiary. They are responsible for making decisions about how money or property is used, invested, and distributed.

Keep Beneficiaries Informed

Trustees must keep beneficiaries well informed throughout any changes in status so they can take appropriate action if necessary. 

This includes keeping them updated on distributions that have been made from the account and information related to the investment performance or market conditions affecting investments within trusts accounts, including dividends, capital gains, interest rates, and taxes owed.

Provide Receipts and Accountings

Trustees must document the actions taken on behalf of their beneficiary as well as provide them with a full accounting at least once per year.

Administer the Trust

Trustees must ensure everything is in order and all required filings are made on time. 

Duties include filing an annual trustee’s tax return with the IRS. Trustees must take these administrative duties to ensure that assets are not lost or improperly used by beneficiaries without proper oversight.

Pay Taxes on Trust Income

All distributions made from a trust account are taxable unless they’re specifically exempted through legislation for certain types of trusts.

Things To Think About Before Becoming One

You need to consider many things before becoming a trustee for someone else’s property or money, including how much time it takes, financial compensation, and potential liabilities associated with being in this position.

Time Commitment

Being a trustee is not a time commitment that you can take lightly. It’s a crucial position and requires someone who understands what it entails to be able-bodied enough to do the job correctly.

Financial Compensation

In most cases, trustees are compensated for their services with either a percentage of the trust assets they administer or through fixed payments made at regular intervals from income generated by investments in trusts accounts. 

Personal Assets

A trustee must ensure that they do not use any trust assets for personal benefit. It would be considered a violation of their fiduciary duty and could result in losing this position.

Personal Liability

If you’re acting as trustee for someone else’s money or property, then you also run the risk of being held personally liable if something goes wrong on your watch. 

So think long and hard about all possible consequences before accepting responsibility to look after other people’s financial interests.

Legal Fees

Lastly, be prepared for the financial cost of hiring a lawyer to set up your trust and an accountant or investment adviser who can advise you on how best to invest funds.

Being a trustee is not easy even though there are many benefits associated with it, including helping others through their hard times and holding onto some form of power over other people’s lives.

Common Misconceptions About Being A Trustee

There are several common misconceptions about what it means to be a trustee.

  1. You can be sure that nothing will ever go wrong as long as the beneficiary follows all the rules and that there won’t be any problems along the way.

These mistaken beliefs could lead trustees to make poor decisions that would impact not only their own lives but also those of others involved with them in this position

  1. Some people think they don’t need legal advice or guidance from an accountant before setting up a trust because everything should work out well if everyone’s intentions are good and no one wants anything wrong to happen.

While these ideas may sound nice on paper, they’re just unrealistic, especially when dealing with large sums of money where even small mistakes made by someone with good intentions could lead to significant problems.

  1. The trustee is always the one with power over everything and everyone else involved in the trust has no say whatsoever about how money or property are distributed out of it even though they may be listed as beneficiaries on paper.

These mistaken assumptions show just how important it is for all parties involved in trust with trustees to understand their roles and responsibilities so that nothing gets misinterpreted going forward.

  1. If you’re acting as a trustee for someone else, then you must be willing to do whatever it takes without asking too many questions or digging into details.

Trustees need to be open-minded and ready to listen before making any decisions, especially when dealing with family members where emotions could get involved quickly. 

Trustees can’t just go around trusting what other people tell them because they have an obligation within their role to ask an appropriate probing question about anything that seems off course along the way.

Final Thoughts

When it comes to the rights and responsibilities of being a trustee, there are many things that you need to think about before taking on this responsibility, including how much time is involved, potential liabilities associated with doing so, and financial compensation.

Being a trustee for someone else’s property or money could be extremely rewarding 

But the role also carries many legal risks if something goes wrong under your watch, which means thinking long and hard about all possible consequences before accepting responsibility to look after other people’s financial interests.

A trustee is someone who has been assigned legal responsibility to look after someone else's money or personal property over an extended period of time. Trustees are usually family members, friends, or professional advisers such as lawyers and accountants acting on behalf of others in this position. They're obligated by law to use the assets they've been given to manage in a responsible manner for the benefit of those who have been entrusted with them.
Trustees have important roles that include being responsible for managing money or property held in trust for someone else. They also look after these assets and try to keep them safe from harm and distribute what's leftover at the end of a set period of time.
Trustees are legally obligated to work within the boundaries of what's outlined in a trust agreement which sets out specific rules that need to be followed. Trustee responsibilities must always put the interests of those who have been entrusted with them above their own personal wants and desires, especially when it comes down to how money or property is distributed.
There's a lot of misinformation going around when it comes to acting as a trustee for someone else. Many people think that trustees have power over everything and everyone, even though this is entirely untrue because they're simply the ones responsible for managing money or property on behalf of others in their trust roles. Another misconception is trustees don't have any say whatsoever about how money or property is distributed out of a trust fund.
When a trustee receives notice that an individual who's been put in their trust role has died, they have to follow the instructions outlined within the trust document. Depending on what those rules are for distributing assets from a deceased estate could impact how long someone else will be acting as a trustee before new arrangements can finally be made after this period of time has been completed.

True Tamplin, BSc, CEPF®

About the Author
True Tamplin, BSc, CEPF®

True Tamplin is a published author, public speaker, CEO of UpDigital, and founder of Finance Strategists.

True is a Certified Educator in Personal Finance (CEPF®), a member of the Society for Advancing Business Editing and Writing, contributes to his financial education site, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University, where he received a bachelor of science in business and data analytics.

To learn more about True, visit his personal website, view his author profile on Amazon, or check out his speaker profile on the CFA Institute website.


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