Understanding Trustee Discretion in Your Estate Plan
Creating a thoughtful and well-rounded estate plan takes preparation. One key step is defining your estate planning goals. Many of those goals can be achieved with a trust, which is why trusts are a common part of many estate plans.
If you’re considering a trust, you may wonder how much control the Trustee has. Here we explain the role of a Trustee and how you can determine the level of discretion they have.
How Trusts Work
A trust is a legal entity that holds assets for the benefit of one or more people. Every trust requires five key elements:
- Trustor – The person who creates the trust.
- Trustee – The person or entity that manages the trust and follows its terms.
- Beneficiary – The individual, group, or even a pet who benefits from the trust.
- Terms – The rules created by the Trustor, which must be legal and reasonable.
- Funding – Almost any asset can be placed in a trust, including cash, property, and investments.
Trusts fall into two categories:
- Testamentary trusts – Created within a Will and activated after the Trustor’s passing.
- Living trusts – Established during the Trustor’s lifetime. These can be:
- Revocable, meaning the Trustor can change or cancel them.
- Irrevocable, meaning they cannot be changed once created.
The Role of a Trustee
A Trustee has two main responsibilities:
- Managing trust assets – This includes making investments and protecting trust property.
- Administering the trust – Following the terms set by the Trustor.
Some key duties of a Trustee include:
- Managing and protecting trust assets
- Following the trust’s terms
- Investing responsibly under the Prudent Investor Rule
- Communicating with beneficiaries
- Resolving conflicts among beneficiaries
- Making discretionary decisions, if allowed
- Approving or denying distributions
- Keeping trust records
- Handling tax filings
How Much Discretion Does a Trustee Have?
As the Trustor, you decide how much authority your Trustee will have. The law requires a Trustee to follow the trust’s terms unless those terms are illegal, impossible, or unreasonable.
When deciding on the level of discretion to give your Trustee, consider:
- Who is serving as Trustee? A professional Trustee is experienced in making financial and legal decisions, so granting them more discretion may be appropriate. If your Trustee is a family member or friend with little experience, you may want to set clearer rules.
- The purpose of your trust – If your trust is intended to support a minor child over many years, you may need to allow more discretion to adapt to future needs. If the trust’s main goal is to protect assets, a strict set of instructions may be better.
Need Guidance on Trustee Responsibilities?
If you have questions about Trustees and trust administration, the Chapel Hill trust administration attorneys at Clarity Legal Group® can help. Call us at 919-484-0012 or contact us online to schedule a consultation.
