Property is something of value that you have a legal right to own and to use, such as money, buildings, investments, and vehicles. Business assets, such as intellectual property including copyrights and patents, are also considered property. An estate is the total property—real property (land and buildings) and personal property (everything else including cars and bank accounts)—owned by an individual before it’s distributed through a living trust or a will upon their death.
Trustees vs. Executors
Trustees can get involved with an estate if there’s a trust set up within the will. This is referred to as a “testamentary trust.” The will instructs the executor to form the trust and transfer certain estate property into it, which will then be managed by a trustee named in the will. The trustee administers the testamentary trust after the executor completes the administration process of forming it.
Types of Trustees
A trust is a legal document set up by an individual to protect their assets and, after their death, to protect their beneficiaries—those who are designated to receive the assets. A critical part of setting up a trust is selecting a trustee. You can select a trustee for estate planning, tax planning, medical planning, and charitable giving, and the trustee can manage and invest property in the trust during the trustmaker’s lifetime, after their death, or both. Some specific types of trustees include:
Investment trustees: These trustees make day-to-day decisions on investments in a personal portfolio or business investment account. Successor trustees: These trustees take over when the trust creator dies or becomes incapacitated and is unable to manage their affairs personally. In this case, the trust creator is the first trustee and the successor trustee is the second. Bankruptcy trustees: These are special trustees appointed by the Department of Justice’s U.S. Trustee who administer and oversee an individual or business bankruptcy process. They typically take legal control over assets during the time of administration before the bankruptcy is discharged. Charitable trustees: These trustees manage the assets in a charitable trust and distribute them to designated charities according to the trust owner’s wishes.
Duties of a Trustee
A trustee stands in a fiduciary capacity for the designator (the person who gives the authority to the trustee). The fiduciary is in a position of trust in representing the will maker or the person setting up a trust or estate. Duties of a fiduciary include:
Accounting for all funds in the person’s estate or trustLoyalty to the person’s wishes (no conflict of interest)Obedience to all lawful orders of the designator
Other duties of a trustee include:
Acting in accordance with the trust document, as long as the terms are legalAvoiding conflicts of interest and remaining impartial with beneficiaries, putting the document firstKeeping trust property and assets separate from assets owned by anyone elseUsing reasonable care and skill in administering the trust and investing trust assets propertyDiversifying investments, unless it wouldn’t be prudent to do soKeeping detailed recordsGiving beneficiaries and federal and state agencies periodic reports.
Tax Duties of Trustees
Taxes must be paid on income generated from trust assets during the lifetime of the trust, and they can include both income taxes, estate taxes, and excise taxes. The IRS requires that estates and trusts file income tax returns on Form 1041 each year to report income and capital gains and losses. Some estates additionally owe estate taxes after the death of the trustmaker, the individual who created the trust.
Can Anyone Be a Trustee?
It’s common to think of asking someone you know to be your trustee, so you can save some money, but this doesn’t come without some drawbacks. Because of the laws and regulations for trusts, appointing a professional trustee—such as a corporate trustee (for-profit business) or a bank trust department—to administer your trust might be a more viable solution.
