What Every Trustee Needs to Know Before Taking on the Role
Serving as a trustee is both an honor and a significant responsibility. Whether you’ve been appointed to manage a family trust or named in a close friend’s estate plan, you’re now legally and ethically obligated to act in the best interest of the beneficiaries and carry out the wishes of the trust creator (also known as the “grantor”).
While the role can be complex, understanding a few key principles can help you avoid common mistakes and fulfill your duties with confidence. Below are the essential dos and don’ts every trustee should keep in mind.
Do: Understand the Trust Document
The trust document is your roadmap. It outlines your responsibilities, the rules you must follow, and how assets should be managed or distributed.
Take the time to review it thoroughly—ideally with the help of a qualified estate attorney. If anything is unclear, seek clarification. Misinterpretations can lead to costly errors.
Don’t: Commingle Assets
One of the most common and serious mistakes trustees make is mixing trust assets with their personal funds or unrelated accounts. This is a breach of fiduciary duty and can lead to legal trouble.
Set up dedicated accounts in the name of the trust and make sure all financial transactions are properly documented and traceable.
Do: Act in the Best Interests of the Beneficiaries
As a trustee, you have a fiduciary duty to act in the best interests of all beneficiaries, regardless of your personal feelings or relationships.
Avoid favoritism. Adhere strictly to the terms laid out in the trust, even if some beneficiaries are more involved or vocal than others.
Don’t: Delay Distributions Without Cause
While it’s important to take the time to properly assess and manage the estate, unnecessary delays in making distributions can create frustration or even lead to legal action.
If there are valid reasons for delay—such as pending tax filings or asset valuations—communicate clearly and consistently with the beneficiaries about what’s happening and why.
Do: Keep Accurate and Transparent Records
You are accountable to the beneficiaries and, in many cases, to the courts. Proper documentation of all financial activity is essential.
Maintain detailed records of every transaction and major decision. In some cases, you may be required to provide regular accountings or financial statements to the beneficiaries.
Don’t: Make Risky Investments
Trustees are expected to invest trust assets prudently and conservatively, balancing the need to preserve capital with the need to generate reasonable returns.
Follow the “prudent investor rule,” which typically calls for a diversified investment strategy. If you’re not comfortable making investment decisions, consult a financial advisor experienced in trust management.
Do: Understand Tax and Legal Responsibilities
Trusts often require their own tax filings, and some distributions may have income tax implications for the beneficiaries. Failing to comply with these obligations can result in penalties—or worse.
Work with an estate attorney and tax professional to ensure all filings are completed correctly and on time.
Don’t: Act Alone If You’re Unsure
You’re not expected to be an expert in every aspect of trust administration. In fact, trustees are encouraged to seek professional help when needed—and doing so is often considered part of acting prudently.
You can use trust funds to pay for legal, tax, or financial advice, as long as the expenses are reasonable and in the trust’s best interest.
Do: Stay Neutral in Family Conflicts
Family relationships and long-standing dynamics can complicate trust administration. It’s important to stay neutral, fair, and focused on the grantor’s intentions.
Stick to the trust document, and avoid inserting yourself into emotional disputes. If tensions escalate, consider bringing in a neutral third party or mediator.
Final Thoughts
Being a trustee isn’t just about managing money—it’s about upholding trust, honoring someone’s legacy, and protecting the interests of others. It requires care, transparency, and a willingness to seek help when needed.
By following these dos and don’ts, you can approach the role with clarity and confidence—and help ensure a smooth, fair, and legally sound trust administration process. To talk to a Vertex Advisor about estate planning and your specific situation, please contact us at in**@************rs.com
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
This information is not intended to be a substitute for individualized legal advice. Please consult your legal advisor regarding your specific situation.
All investing involves risk including loss of principal. No strategy assures success or protects against loss. There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.
LPL Financial Representatives offer access to Trust Services through The Private Trust Company N.A., an affiliate of LPL Financial.
Vertex Planning Partners and LPL Financial do not provide legal advice or services.