Responsibilities of a Trustee
Written By: Ryan Rink, CFP®, EA, ChFC®, CLTC®
When an individual is named as a trustee, they assume a significant role that carries both financial and legal responsibilities. Above all, trustees must follow fiduciary standards. This requires acting in the best interests of the beneficiaries and being fully compliant with the terms of the trust agreement. They are required to keep the beneficiaries reasonably informed about the administration of the trust and are expected to respond promptly to beneficiaries’ requests. Below, we’ll take a closer look at some of the key responsibilities of a trustee.
Settling the Estate
A trustee is responsible for carrying out the terms of the trust in accordance with the wishes of the grantor (creator of the trust). Key responsibilities include:
Identifying Assets/Insurance: Locating, protecting, and managing all trust property and estate assets.
Notifying Relevant Parties: Informing beneficiaries, financial institutions, and other interested parties of the grantor’s passing.
Paying Debts and Expenses: Paying off outstanding liabilities, final bills, taxes, and administrative costs before distributing assets.
Communicating with Beneficiaries: Keeping beneficiaries informed of the process, their rights, and anticipated timelines.
Distributing Assets: Transferring property and other assets to the beneficiaries in line with the trust’s direction.
Asset/Investment Management
A trustee is responsible for managing the assets held within the trust. This includes overseeing investments and managing other property owned by the trust. Their responsibility is to act prudently, balancing growth and preservation of capital while always prioritizing the best interests of the beneficiaries. In many cases, trustees will partner with financial professionals to help with investment strategies, portfolio monitoring, and long-term planning.
Depending on the terms of the trust, a trustee may also have the discretion to distribute assets to beneficiaries. This discretion must be exercised fairly and in accordance with the language written in the trust agreement. Mismanagement and/or favoritism could expose the trustee to legal liability.
Tax Filing and Recordkeeping
Trustees are also responsible for handling tax matters related to the trust. Since tax rules governing trusts can be nuanced, trustees often partner with qualified tax professionals. Doing so helps reduce the likelihood of errors, ensures deadlines are met, and may uncover strategies to minimize overall tax liabilities for the trust and its beneficiaries.
Examples of common tax-related responsibilities for trustees include:
Form 1041 (U.S. Income Tax Return for Estates and Trusts): Trustees must file this annual return if the trust generates more than $600 of gross income.
K-1s to Beneficiaries: Trustees must issue Schedule K-1 forms to beneficiaries to report any distributions of income, deductions, or credits.
State Filings: In addition to federal returns, many states require trust tax filings.
Form 706 (U.S. Estate Tax Return): In some instances, the trustee may also need to file an estate tax return. This form is filed only once and is typically due nine months after the decedent’s passing.
If you have been named as a trustee or are deciding who to appoint, it’s important to seek professional guidance. Our team at Shakespeare is here to help. Reach out to us at (262) 814-1600 to discuss your specific situation.