You may be asking this question because you have to appoint a trustee in your will or family trust, or because you’ve been named as a trustee in a will or trust deed. This article will cover the basics of what a trust is, what a trustee is, what a trustee does and cannot do, and what you should consider before appointing a trustee or agreeing to become a trustee.
What is a Trustee?
A trustee is a person (or legal entity) that holds and administers property for the benefit of a third party. When a person holds property in their name for another person’s benefit, they are holding it “in trust” for the other person, who is a “beneficiary” of the trust.
Some of the most common uses of trustees are:
- setting up family trusts, tools for passing wealth in a tax advantageous way, in which the trustee manages the trust and its assets for beneficiaries of the trust; and
- appointing trustees in a will, where a beneficiary (inheritor) under a will is a minor or is otherwise incapable of managing their inheritance, or the will-maker prefers not to pay out a large inheritance to a person who has reached the age of majority (19) but doesn’t have the financial responsibility or experience to receive a large estate.
What Does a Trustee do?
Whether appointed to manage a family trust or manage the inheritance of a beneficiary under a will, a trustee must:
- Act as a fiduciary – meaning that they must do all things legally expected to act in the best interest of any beneficiaries;
- Understand the terms of a trust or a will, as the case may be;
- Ensure the safety of any assets held by a trust or comprising an estate and invest and convert them as is reasonably required;
- Administer the trust or the will in accordance with the instructions therein;
- Prepare tax forms and keep meticulous records;
- Communicate with beneficiaries; and
- Make ongoing decisions regarding the trust or the administration of an estate.
For example, if a trustee is appointed to manage the inheritance of a minor beneficiary under a will, the trustee may need to manage investments of the estate property, ensure that the property is maintained in a state of good repair, ensure any tax forms required are filed, and be available to make decisions regarding advances made early, such as for the care, maintenance, and education of the child.
How is a Trustee Different from an Executor?
Only the trustee of a family trust (or any professional they retain to act on their behalf) can manage and administer the trust as the trust directs. They are involved when the grantor of the trust is alive.
On the other hand, an executor will manage and administers the estate of a person who has died and left assets to heirs under a will. A person can be named as a trustee under a will, but that is only necessary if a beneficiary is under the age of majority, is incapable of managing their inheritance, or the will-maker does not wish to gift a beneficiary their inheritance without the guidance and oversight of a trustee.
An individual can name one person for each role or could appoint one to perform both roles. A trustee’s term is dependent on the trust or the terms of a will.
Do I Need a Trustee?
You need a trustee anytime that you are setting up a family trust or gifting property to a person under a will, and such person is under the age of majority (19) or otherwise incapable of managing their own financial affairs. You can also appoint a trustee for a beneficiary who is over the age of majority (19) if you feel that they are not prepared to receive a large inheritance at a young age. For example, some will-makers will give their children a gift when they reach the age of majority (19) but appoint a trustee to manage their children’s inheritance until they are more financially literate. So, a beneficiary may receive a gift of $10,000 when they reach the age of majority (19), but not receive the family home until they are older (for example, age 25).
How do I Choose a Trustee?
If a person is named as the trustee under a will, they do not have to accept the role.
Therefore, a will-maker should always notify their trustee before naming them, to make sure they’re up to the task of managing an inheritance for a beneficiary. If the will-maker cannot think of any persons who they feel could take on this role, they can hire a lawyer or trust company to act as trustee (for a fee).
How Can I Get Help as a Trustee?
While trustees can manage a family trust or act under a will without any legal advice or assistance, this can cause significant delays, result in costly errors, and could even result in the trustee being sued by the beneficiaries of a will or family trust.
If the trustee is unsure about what they need to do as a trustee or how to manage an inheritance or a family trust, they should speak to a trusts and estates lawyer.
This article is intended to be informative and does not replace or constitute legal advice.
If you have a question about this topic or another legal matter, contact Naz Khodarahmi for a complimentary consultation. You can book a consult through www.macushlaw.ca through our booking system or contact Naz at [email protected] or 604-612-8024.