What Responsibilities Does a Trustee Have?

Serving as a trustee involves more than holding a title. A trustee may be responsible for managing property, maintaining detailed records, communicating with beneficiaries, and carrying out instructions that could continue for many years.

Whether you are creating a trust or have been asked to serve as a trustee, understanding the role can help you decide whether the arrangement is appropriate and whether the person selected is prepared for the work involved.

What Is a Trustee?

A trustee is the person or institution responsible for managing property held in a trust. The trustee receives authority from the trust document and must use that authority according to the trust’s terms and applicable law.

The trustee’s responsibilities can depend on the type and status of the trust. For example, while a Colorado revocable trust remains under the control of the person who created it, the trustee’s duties may primarily be owed to that person. After the trust becomes irrevocable, the trustee’s responsibilities generally focus more directly on the interests of its beneficiaries.

In either situation, a trustee must understand the trust document before making decisions or distributing property.

Taking Control of Trust Property

When a trustee accepts the role, one of the first responsibilities is identifying and taking control of the property held by the trust.

Depending on the circumstances, this may involve:

• Locating bank and investment accounts
• Confirming how real estate is titled
• Identifying business interests or valuable personal property
• Creating an inventory of trust assets
• Establishing the value of certain property
• Reviewing insurance covering trust property
• Collecting property from a former trustee or another person

A trustee may also need to open appropriate financial accounts and confirm that trust property is kept separate from the trustee’s personal property.

Accurately identifying the assets is an important first step. A trustee cannot properly manage or distribute property without knowing what the trust owns.

Managing and Protecting Trust Assets

Once trust property has been identified, the trustee is responsible for managing and protecting it.

This may include:

• Managing bank and investment accounts
• Maintaining real estate
• Paying appropriate expenses
• Safeguarding valuable personal property
• Monitoring insurance coverage
• Collecting income owed to the trust
• Addressing claims involving trust property

A trustee is generally expected to use reasonable care, skill, and caution. That does not mean every investment will increase in value or that every decision will produce a perfect result. It means the trustee should make informed decisions based on the trust’s purpose, instructions, assets, and beneficiaries.

Trustees should also avoid mixing trust property with their own money or using trust assets for personal purposes.

Following the Instructions in the Trust

A trustee does not have unlimited authority. The trustee must follow the distribution instructions and limitations contained in the trust document.

Depending on those instructions, the trustee may need to:

• Distribute assets after the person who created the trust dies
• Manage property for minor children
• Make distributions for health, education, maintenance, or support
• Hold an inheritance until a beneficiary reaches a particular age
• Continue administering the trust over several years or generations
• Reserve funds for expenses, taxes, or future distributions

For example, a trust may direct that a child receive portions of an inheritance at certain ages rather than receiving everything at once. In that situation, the trustee generally cannot disregard the schedule simply because the trustee or beneficiary would prefer a different arrangement.

Some trusts give trustees discretion when making distributions. Even then, that discretion must be exercised in good faith and within the standards established by the trust.

Treating Beneficiaries Impartially

When a trust has multiple beneficiaries, the trustee may need to balance different interests.

Acting impartially does not always mean making identical distributions to everyone. Beneficiaries may have different rights under the trust, and the document may instruct the trustee to consider their individual needs or circumstances.

However, a trustee should not favor one beneficiary because of a closer personal relationship, pressure from family members, or disagreement with another beneficiary. Decisions should be based on the trust’s terms rather than the trustee’s personal preferences.

This can be one of the more challenging parts of appointing a family member as trustee, particularly when that person is also a beneficiary.

Avoiding Conflicts of Interest

A trustee has a fiduciary duty. This generally requires the trustee to act loyally and avoid using the role for personal benefit.

Potential conflicts can arise if a trustee:

• Purchases trust property personally
• Loans trust money to themselves
• Uses trust assets for personal expenses
• Directs business to a company they own
• Makes decisions that improperly favor themselves as a beneficiary
• Enters transactions involving close relatives or business associates

Not every transaction involving a trustee is automatically prohibited, but conflicts should be handled carefully. The trust document, beneficiary consent, court approval, or professional guidance may be relevant depending on the circumstances.

Maintaining Records and Communicating With Beneficiaries

Trust administration requires consistent recordkeeping. A trustee should be able to explain what property the trust owns, what income it has received, which expenses have been paid, and what distributions have been made.

Records may include:

• Account statements
• Property valuations
• Purchase and sale documents
• Receipts and invoices
• Income and expense records
• Tax documents
• Distribution records
• Communications with beneficiaries and advisors

Trustees may also have obligations to provide information or reports to certain beneficiaries. The required timing and information can depend on the type of trust and its circumstances.

Clear communication can reduce confusion and help beneficiaries understand why decisions were made. Rather than waiting until a disagreement develops, a trustee should respond appropriately to reasonable questions and maintain records throughout the administration.

Handling Expenses and Tax Matters

A trustee may be responsible for paying expenses associated with trust administration and preserving funds for future obligations.

Depending on the trust, this could include:

• Property maintenance and insurance
• Professional fees
• Taxes
• Debts or claims
• Investment expenses
• Costs related to selling or managing property

The trustee may also need to work with a qualified tax professional to determine whether returns are required and how income or distributions should be reported.

Trust funds should not be distributed prematurely if money may still be needed to pay legitimate expenses, debts, or taxes.

Can a Trustee Hire Professional Help?

A trustee is not necessarily expected to personally handle every legal, tax, investment, or property-management issue. Depending on the trust and the work involved, a trustee may hire attorneys, accountants, financial professionals, appraisers, real estate professionals, or other advisors.

However, hiring assistance does not mean the trustee can stop paying attention. The trustee may still be responsible for:

• Selecting qualified professionals
• Defining the work they will perform
• Providing accurate information
• Monitoring their services
• Reviewing significant recommendations
• Ensuring their costs are appropriate for the trust

Seeking guidance can be especially helpful when the trust holds complicated assets, involves several beneficiaries, or requires long-term administration.

What Can Happen If a Trustee Makes a Mistake?

Trustees are held to meaningful legal responsibilities. A trustee who misuses property, disregards the trust, fails to maintain records, improperly favors one beneficiary, or acts despite a conflict of interest may face a dispute.

Depending on the circumstances, a court could require the trustee to provide an accounting, correct a distribution, repay the trust, or step down from the role.

Not every administrative mistake becomes a breach of trust. However, obtaining guidance early may help prevent uncertainty or an oversight from developing into a larger problem.

Choosing the Right Trustee

The best trustee is not necessarily the oldest child, closest relative, or person with the strongest financial background. The role requires time, organization, judgment, communication, and a willingness to follow instructions even when family members disagree.

Before naming someone, consider whether that person:

• Has the time to perform the work
• Can keep accurate records
• Is comfortable making financial decisions
• Can remain neutral among beneficiaries
• Will ask for professional assistance when appropriate
• Understands the long-term nature of the commitment
• Is willing to accept the role

The person should also know they are being considered. Naming someone without discussing the responsibilities first can create difficulties when the trustee is eventually asked to serve.

Get Guidance With Trust Planning

A trustee plays a central role in whether a trust operates as intended. Understanding the responsibilities involved can help you choose an appropriate person, prepare them for the position, and create instructions that are practical to administer.

If you are creating or updating a trust, Trust Planning Services from Mason Law & Planning Group can help you consider trustee selection and structure a plan around your family, property, and goals.

If you have been asked to serve as a trustee and have questions about your responsibilities, contact our team to discuss the trust and the next steps in its administration.