Just as the word implies, a trustee is a person entrusted with assets intended for the benefit of others. Specifically, as Investopedia explains: A trust is a fiduciary relationship in which one party, known as a trustor, gives another party, the trustee, the right to hold title to property or assets for the benefit of a third party, the beneficiary.
When a trust is created, the person originating it (the trustor) appoints a trustee to manage it. The written trust agreement generally includes details about the subsequent distribution of assets to beneficiaries. According to Legal Beagle:
The trustee has a duty to manage the trust’s assets in the beneficiaries’ best interests. This means distributing the assets to beneficiaries as set forth in the trust, avoiding risky investments and treating all beneficiaries impartially.
Beneficiaries are entitled to receive a financial accounting of the trust, including bank statements, regularly.
Because a trustee administers the funds on behalf of the beneficiaries, a separate, dedicated bank account needs to be used exclusively for the trust funds:
A trust needs its own checking account so the trustee can manage the trust’s funds, bills and payments to beneficiaries. Because the money belongs to the trust and not the trustee, the trustee uses a separate checking account to keep trust money from mixing with…personal funds. A trust checking account also makes the trust’s financial activities easier to follow and document.
When funds are invested, volatile markets can present unique challenges to trustees. Generally, trustees must follow the standards of the prudent investor rule in carrying out their duties.
It is important for trustees to keep careful records, documenting use of the funds as defined in the trust agreement. Additionally, given the fiduciary responsibilities undertaken by trustees, the trust agreement may require them to secure a trustee bond. In some circumstances, courts can also require a trustee bond.
Trustee Bonds Explained
A trustee bond is a type of fiduciary bond that protects the interests of the trust and its beneficiaries in accordance with applicable state law. Essentially, trustee bonds guarantee the faithful performance of the trustee.
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