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The Role of a Fiduciary and Trustee

A Fiduciary is a person who assumes responsibility for a position of trust. Often, fiduciaries serve by court appointment as a conservator or trustee, as well as a guardian or personal representative of estates named in an individual’s estate planning documents.

Typical responsibilities include:

Prudent management of the trust assets

  1. Determination of investment objectives and proper asset allocation
  2. Development and maintenance of the accounting records of all transactions performed in the capacity as a trustee
  3. Administration of a will
  4. Determination of distribution requirements
  5. Verification and payment of obligations and invoices
  6. Ensuring that all proper tax returns are filed

The trust document controls the role of the trustee and needs to be reviewed with the Trustor/Grantor for a total understanding of intentions. A clear understanding must be attained for general dispositive provisions, powers of appointment, distribution plan instructions, disclaimers, estate taxes, allocation of principal and income, generation-skipping transfers, income tax issues, disqualified persons, asset schedules, and any ambiguities or drafting errors.

It is also the fiduciary’s responsibility to identify to the Trustor/Grantor the normal and accepted business practices that can create actual or apparent conflict of interest within the context of fiduciary responsibility.

The Role of a Trustee

A trustee reviews the trust assets and determines if any special protection or action is needed such as securing greater liquidity, obtaining insurance or selling risky investments. A professional trustee must know the client and beneficiaries well to determine if there are any special needs or provisions in the Living Trust document. When dealing with many family members who are beneficiaries, the trustee must maintain objectivity and impartiality. These traits must be coupled with understanding, accessibility and expertise. Your trustee is legally obligated to carry out all of the provisions of your trust.

A trustee also manages administrative functions such as determining if the assets are titled in the trust name, if the trust has a tax identification number and checking all insurance policies, leases and contracts. A trustee also reviews all investments to see if there is a need for any court oversight, reviews all bills on a timely and ongoing basis and compiles records for annual tax preparation. Essentially, a trustee does the "legwork" for the client. The duties range from answering questions to making special disbursements to paying new bills, while helping you maintain control of your estate. A trustee acts with impartial compassion towards all parties involved and has a duty to avoid conflicts of interest.

The trustee must be active in the management of the trust, be diligent, skillful and continually maintain the client’s need of confidentiality. A trustee also seeks professional advice when needed, is alert to danger signals, supervises persons involved with the trust and trustor and does not delegate authority.

Investment duties are part of the trustee responsibilities such as investing assets or securing a responsible person to provide investment advice. The trust document needs to be reviewed carefully to ascertain the goals, objectives and the needs of beneficiaries. The trustee must maintain supervision of any real estate or business interests in the trust and oversee management and finances of any asset. He or she must also maintain appropriate insurance coverage on trust assets at all times. Trustees also set up a trust checking account.

The Role of an Executor

An Executor is a personal representative designated in your will to carry out your instructions after your death. Your executor will need to be approved by the probate court judge so that the executor can carry out his or her duties. Your executor is also a fiduciary and as such is held to a strict legal standard. Trustee and executor responsibilities are very similar in that they require knowledge of several disciplines such as tax planning, investment management, property management and an appreciation of asset values.

Practical duties include the collection, custody and distribution of probate and non-probate assets. They settle all debts and expenses and determine the approximate amount to pay for estate taxes, probate fees and administration costs.