Know the Basics About Trustees

A lot of people are confused by what it means to name a trustee or what to do if they are asked to serve as one. To understand options and responsibilities, it’s best to start with some of the basics. This outlines some of the general rules that apply in Virginia. Keep in mind that a particular situation will be dependent on the facts and the instrument itself, as well as relevant statutes and caselaw.

To begin with, it is only possible to have a trustee if there is a trust. A trust can be either irrevocable or revocable (the most common form of this one is properly referred to as a ‘revocable living trust’). Sometimes trusts are convertible – they can be revocable, which means that their terms can be changed or done away with, during a person’s lifetime, for example, but become irrevocable at death. Sometimes trusts are irrevocable from the start.

A trust can be created during a person’s lifetime or can be created at their death with a will (these kinds of trusts are called ‘testamentary trusts’). All trusts have to own some kind of property or assets and must be for a valid and legal purpose. They are governed by the law of a particular jurisdiction, which is usually the law in which the person who creates the trust resides. This is not always the case, though, because when writing a trust you can choose the law by which it will be interpreted.

The person creating the trust is called a settlor or grantor. The person or entity (like a charity, for example) who benefits from the trust is called the beneficiary. In order for a trust to work, it must have a trustee. A trustee is the person or people (it can also be an entity) who is responsible for holding the property owned by the trust and making sure that the purposes of the trust are carried out according to the terms of the instrument and the law. Like an executor in a will, a trustee is a fiduciary (an agent who is responsible for putting other’s interests before his own). Unlike an executor, however, trustees often do not have a duty to account to a Commissioner of Accounts or a court, and they have a great deal of discretion in they choose to act.

This discretion is not unlimited, though, and it is controlled by the terms of the trust itself as well as relevant law. Virginia, like many other states, has adopted a statute based on the Uniform Trust Code. This is part of a nationwide effort to make state laws more predictable and to provide default provisions that will control when an instrument is silent. The goal is certainty for planning professionals and people who create trusts, but it is also a way to keep trustees from having to petition a judge for guidance when an instrument itself is not as clear as it could be or when circumstances happen that the grantor did not foresee. Note that under the uniform codes it is also possible to judicially revise or even revoke irrevocable trusts when specific conditions are met.

When choosing a trustee, it is important to pick a person (people) who will likely be able to act when necessary. One should have a provision for choosing an alternate, even if the actual alternate is not named. The more detailed the instrument can be, the better, for being too vague on this point is a common way that trusts can fail. At the same time, however, you do not want the procedure for naming a trustee to be too complicated. The people who serve as trustees should be competent and organized and should be able to put their personal interests behind the interest of the person who created the trust. In some cases, like a trust for the benefit of a surviving spouse, the trustee and the beneficiary are the same. It is a good idea for the creator of a trust to understand trustee basics at the time the trust is written and it is also advisable for a potential trustee(s) to review these basics before they are called upon to serve.