The Role of a Trustee: Responsibilities and Best Practices

If someone has named you as a trustee, congratulations—it means they trust you to manage their estate responsibly. But if you’re feeling a little overwhelmed about what that actually entails, you’re not alone.

Being a trustee isn’t just about handing out inheritances—it’s a legal and financial responsibility that requires care, attention, and fairness. Done right, you can help ensure a smooth transition of assets. Done wrong, and you might find yourself in a legal mess.

This guide will walk you through what a trustee does, key responsibilities, and best practices to avoid common pitfalls.

What Is a Trustee?

A trustee is the person or entity responsible for managing and distributing assets held in a trust. This role can last for months, years, or even decades, depending on the trust’s terms.

There are two main types of trustees:

✅ Individual Trustees – A family member, friend, or trusted advisor chosen by the grantor (the person who created the trust).
✅ Corporate Trustees – A bank, law firm, or financial institution that professionally manages trusts.

No matter the type, every trustee has a fiduciary duty—which means acting in the best interest of the beneficiaries at all times.

Core Responsibilities of a Trustee

1. Managing and Protecting Trust Assets

A trustee controls and safeguards all assets placed in the trust. These could include:

• Bank accounts
• Real estate
• Investments (stocks, bonds, etc.)
• Business interests
• Personal belongings

💡 Best Practice: Keep a detailed inventory of all assets and track any changes in value.

2. Following the Terms of the Trust

The trust document outlines exactly how assets should be handled. A trustee must follow these instructions—no exceptions.

Example: If the trust says, "Beneficiary receives $5,000 per year until age 30," you cannot give them $10,000 early, even if they really need it.

💡 Best Practice: Review the trust with an attorney if anything seems unclear.

3. Communicating with Beneficiaries

Beneficiaries often have questions about when they’ll receive their inheritance. As a trustee, you must keep them informed without favoring one beneficiary over another.

What beneficiaries need to know:
✔ General timeline of trust administration
✔ Regular updates on distributions
✔ Financial status of the trust

💡 Best Practice: Set clear expectations early to avoid misunderstandings.

4. Paying Debts, Taxes, and Expenses

Before beneficiaries receive anything, the trustee must settle all outstanding debts and taxes. This includes:

• Funeral and medical expenses
• Estate and income taxes
• Legal and administrative costs

💡 Best Practice: Open a separate trust bank account to pay expenses and avoid mixing trust funds with personal accounts.

5. Investing Trust Assets Wisely

If the trust includes investments, the trustee must manage them responsibly to benefit the beneficiaries.

• Avoid risky investments
• Diversify assets for stability
• Follow the Prudent Investor Rule (invest as a reasonable person would)

💡 Best Practice: Work with a financial advisor if you’re not confident managing investments.

6. Distributing Assets to Beneficiaries

When it’s time to distribute assets, the trustee must follow the trust’s instructions exactly.

Common distribution types:
✔ Lump sum payments – Full inheritance given at once.
✔ Staggered payments – Payments over time (e.g., at ages 25, 30, and 35).
✔ Discretionary payments – Trustee decides when funds are given, often for education or healthcare.

💡 Best Practice: Keep written records of all distributions to avoid disputes.

Common Trustee Mistakes (and How to Avoid Them)

🚫 Favoring One Beneficiary Over Another
Even if you’re close to one beneficiary, you must remain fair and impartial.

🚫 Failing to Keep Proper Records
Every transaction should be documented—missing records can lead to legal trouble.

🚫 Delaying Distributions Without Cause
While probate can take time, unnecessary delays can frustrate beneficiaries and lead to lawsuits.

🚫 Mixing Trust Funds with Personal Money
Always use a separate trust account—never deposit trust money into your personal account.

🚫 Ignoring Legal and Tax Obligations
Not filing required tax returns or mismanaging funds can result in personal liability for the trustee.

💡 Best Practice: Consult an estate attorney and CPA to ensure compliance.

Can a Trustee Get Paid?

Yes. Trustees are entitled to reasonable compensation for their time and effort. The amount depends on:

✔ Trust instructions
✔ State laws
✔ Complexity of the trust

💡 Best Practice: Be transparent about compensation to avoid conflict with beneficiaries.

When Should You Get Professional Help?

While some trusts are straightforward, others can be legally complex. You may want to hire professionals if:

✅ The trust involves real estate or significant investments
✅ There are family disputes over inheritance
✅ You’re unfamiliar with trust administration laws
✅ The trust has ongoing financial obligations

💡 Best Practice: If in doubt, seek legal and financial guidance to avoid costly mistakes.

Final Thoughts: The Key to Being a Great Trustee

Being a trustee is a serious responsibility, but with careful planning and professional guidance, you can manage the trust smoothly and honor the wishes of the person who appointed you.

Key Takeaways:

✔ Understand your responsibilities—follow the trust terms carefully.
✔ Keep clear records—document every transaction and decision.
✔ Communicate openly—keep beneficiaries informed to prevent conflicts.
✔ Seek professional help when needed—it’s okay to ask for legal or financial guidance.

If you’ve been named as a trustee and have questions, Understanding Estates is here to help. Reach out to our team for guidance on managing your trust with confidence.

‍