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Trustee

Updated on April 9, 2024
Article bySusmita Pathak
Edited byAshish Kumar Srivastav
Reviewed byDheeraj Vaidya, CFA, FRM

Trustee Meaning

A trustee is an individual or institution with legal authority to manage the trust property and assets on behalf of the settlor to benefit the beneficiary. They have complete control over the trust assets until they get transferred to the beneficiary. The administration of assets goes as per the directions of the trust.

The settlor establishes a trust under a trust agreement with a person or entity. After which, the latter acts as a custodian for the trust assets and makes all the finance-related decisions till the beneficiary is ready to hold the legal authority. Besides managing assets, they make investments, plan estate, document expenses, and lease or sell a property. They can also look after charities, pension trusts, retirement plans, and bankruptcy.

Trustee-Trustor Relation

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Key Takeaways

  • The trustee refers to an individual or firm that takes care of the property or assets under a trust set up by the settlor or trustor until the beneficiary is eligible to take control.
  • They are free to make financial decisions, such as recording transactions, leasing the trust property, or selling the asset. Parts of their role include tax planning, estate planning, and charitable giving.
  • Based on the purpose, they can act as and for independent, family, corporate, private fiduciary, managing, SMSF, bankruptcy, and successor.
  • In some cases, they are also the beneficiary, shouldering the responsibility of managing the trust property until the beneficiary becomes eligible to exercise their rights.

How Does A Trustee Work? 

Many people remain concerned about proper management of their assets if the beneficiary is unable or ineligible to do so. Sometimes, the purpose can go beyond benefiting a person to overseeing a charity, bankruptcy, or pension trust. In situations like these, setting up a trust and appointing a custodian is the best way to do this.

How Trustee Work

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A trust is a legal arrangement between the trustor and the trustee, authorizing the latter to hold and manage the assets or property to benefit the beneficiary. It is to ensure that the assets are protected and distributed to the beneficiary once they are eligible. Both the trustor and the custodian sign an agreement known as trust and involve in a legal deal.

Anyone above 18 years of age is eligible to hold the position. They can be from a family or friend to a lawyer or trust company. The term is significant in various scenarios, whether a trust fund, charity, bankruptcy, pension plan, or self-managed super fund (SMSF).

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Duties Of Trustee

Duties Of Trustee

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  • They are legally entitled to act as custodians to the trust assets to benefit another individual (trust beneficiary) on behalf of the trustor or settlor.
  • Custodians are responsible for managing assets, such as real estate, property, business assets, or other investments, such as equities.
  • They have the authority to access funds, write checks, approve distributions, prepare financial statements and file tax returns.
  • Custodians can manage different types of trust, including charitable trusts and investment trusts, and look after the finances in bankruptcy processes.
  • They also have fiduciary responsibilities, which require them to make choices in the beneficiary’s best interests while managing the trust per the law.
  • Trustee powers and duties are delegated to them as a legal obligation.
  • They are responsible for documenting expenses related to legal advice, investing assets, preparing tax-related forms, maintaining trust, etc.
  • A custodian can also execute a lease over the trust property if the terms are found suitable.
  • They are free to sell the trust property if no clause forbids them to do so or in the absence of a successor.
  • If the custodian resigns or dies, a successor custodian takes over the trust assets.
  • They keep beneficiaries up to date on accounts and taxes.

Trustee Examples

Example #1

  • Sam, a businessman, is diagnosed with cancer, so he calls his lawyer to prepare his will. 
  • He lives with his second wife, Maria, and three children, including two from his first marriage. 
  • Sam wants Maria to be the nomineefor the entire estate but is unsure if his children from his first marriage will get fair and equal treatment. 
  • Thus, he divides his property and gives one part to his wife and the other part to a trust company, ABC, to take care of the rights of his other two children, who would be the future beneficiaries.
  • The trust company, in this case, becomes the custodian until the kids turn 18.

Example #2

  • The United Kingdom witnessed a steep rise in pension scams. Pension funds are the lifetime savings of people who desire to lead a stress-free life after retirement. However, the transfer of pension funds is allowed whenever requested, making fraudsters benefit without facing any hurdle.
  • Therefore, the United Kingdom government intends to apply the provisions outlined in Section 125 of the Pension Schemes Act 2021.
  • Under these provisions, custodians will have the right to restrict a fund transfer request if they find it suspicious.
  • The Act would give more power to custodians, and they could implement strict rules to make sure scammers do not find pension scheme frauds easy to commit.

Types of Trustees

Types of Trustee

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#1 – Independent Trustee

They work independently and could be anyone from the friend of the trustor/settlor to a lawyer or trust company. They assist with the smooth operation of the trust. And make decisions that are in the best interests of the beneficiary. They are also free to decide and approve distributions to beneficiaries independently without any external influence.

#2 – Family Custodian

Many trust settlors choose to designate a family trustee rather than appointing someone from outside the family. Since they are close to the grantor and are familiar with the financial and other family situations, they take decisions keeping in mind the individual requirements of the beneficiary.

#3 – Corporate Trustee

If a trustor finds none of the family members trustworthy, they can have an entity appointed. They manage multiple trusts at a given time and are experienced enough to take care of the finances. They gain access to the company resources so that they can make appropriate financial decisions when required.

#4 – Private Fiduciary

A private fiduciary is an alternative to a corporate custodian. Like the latter, they can handle a large volume of financial resources but have an individualized approach and offer a personal touch to the settlor and beneficiary.

#5 – Managing/Charitable Trustee

A charity’s board of directors and management committee make strategic decisions that keep the trust running efficiently. They play a vital role in controlling, administering, and distributing charity assets to the charities designated by the trust owner.

#6 – Bankruptcy Trustee

The U.S. Trustee Program of the United States Department of Justice appoints bankruptcy custodians. They keep an eye on bankruptcy cases and deal with them legally. Also, they look after the assets till the debtor gets released from his or her obligations.

#7 – Successor Custodian

There may be instances when the trustor or the former custodian is unable to administer or dies. In such a scenario, the successor custodian takes over. It happens when the settlor has an independent custodian to foresee their trust assets.

#8 – SMSF Trustee

An SMSF custodian can be either of the two types – individual and corporate custodian. In the former case, every member who is legally titled should be a custodian with equal responsibilities. On the other hand, in the corporate custodianship, which could be a firm, every member involved should be the company director.

Can Trustee Be A Beneficiary? 

Yes, a custodian can be a beneficiary in cases when trust settlors have a family custodian appointed.

For example, Mark, a father of three, decides to divide his property equally among all of them. He makes his first child, who is also the beneficiary, the custodian of his property. According to the legal document, that child would be responsible for making the financial decisions for the other two kids. And once they turn 18, they will get rights to the property.

Frequently Asked Questions (FAQs)

What is a trustee?

A custodian is an individual or firm in charge of the trust property or assets on behalf of the trustor until the beneficiaries are legally eligible to exercise their rights. One must be 18 years or above to serve the role.

What is the role of a trustee?

A custodian takes care of the trust assets and is free to make any strategic decisions related to the trust property. They ensure that the financial decisions are in the beneficiary’s best interests. Also, they can execute a lease over the trust property and even sell it if there are no legal restrictions imposed.

Can trustee be beneficiary?

Yes, the same person can be a beneficiary and custodian at the same time until the rest of the trust beneficiaries turn 18 and are eligible to exercise their rights on the assets.

This has been a guide to What is Trustee and its Definition. Here we discuss types of Trustee and how it works, along with examples & its duties. You may also have a look at the following articles to learn more –

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