What is a Trustee?

david disraeliBy David Disraeli

A trust has three components:

1. The trust-maker, or donor, or testator, or grantor (all synonymous). This the person creating the trust.
2. The beneficiaries – these are the people or person who receive benefits from the trust.
3. The trustee(s) – this is the person or people who manage the assets of the trust.

The trustee can be almost anyone you choose. The most important factor is that you TRUST the person. You may also have co-trustees so no one person can make all the decisions and alternate trustees in case your first choice is unavailable. The trustee has three primary responsibilities, 1) to invest the assets in the trust and manage them, 2)To make distributions according to the trust language and 3) to keep an accounting of the trust’s activities.

By far, the source of most concern among clients who are contemplating the creation of a trust is whether their heirs will get what they need when they need it. Most trusts define the purpose of the assets as “health, maintenance and education”. Of course this is very broad and can mean almost anything. The only other option to providing broad discretion to the trustee is to create a long and complicated trust document. This issue just mentioned causes trust creators to pick an early age to distribute assets to their heirs outright, like age 21 or 25. This is a mistake! Assets only have two uses: to be spent or to be invested. If you can do both inside a trust with all the protections, why would you want to distribute them and subject them to creditors, bankruptcy, future ex-spouses, business partners, the IRS etc.?

When money is held in trust is it technically not the property of the beneficiaries. Therefore their creditors cannot reach them. We live in a very litigious society and one never knows if or when they may be sued. A properly drawn trust can protect beneficiaries from themselves and others while providing an easy means of obtaining distributions.

Lastly, things change, trustees die or can develop animosity toward one or more beneficiaries. For this reason, there should be at least one or preferably two alternate trustees and a provision to remove a trustee.

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Copyright David Disraeli 2017


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