Choosing the Right Trustee: Responsibilities and Essential Insights

One of the most important decisions a grantor or creator of a trust must make is the selection of a trustee. Legally bound to possess, protect, and preserve the trust’s property, the trustee must serve as a fiduciary—always acting in the trust’s and beneficiaries’ best interests. Before making that critical choice, let’s first look at what that role entails.

The trustee must carry out the trust’s terms and applicable law, while acting as a fiduciary for all current and future beneficiaries. The litany of essential tasks involve a mastery of legal, tax, accounting, and investing knowledge that spans:

• Fiduciary compliance: Read and apply the trust instrument and fiduciary law; act prudently, loyally, and impartially for all current and future beneficiaries.
• Asset custody and administration: Take control of and safeguard trust assets, handle account opening/closing, retitling, and day-to-day operational tasks.
• Cost basis and tax attributes: Coordinate valuation and any applicable basis adjustments and other tax attributes to support accurate reporting and future gain/loss calculations.
• Sub-trust funding and allocations: Retitle and allocate assets correctly among any sub-trusts (e.g., marital, credit shelter, or generation-skipping trusts) and maintain separate tracking.
• Investment oversight: Invest and manage cash flow in line with the trust’s standards—diversify, monitor performance, and balance income needs with long-term growth and risk.
• Unique, and illiquid assets: Evaluate whether to retain or sell assets such as residences, vehicles, boats, collectibles, and closely held business or LLC interests.
• Distributions: Evaluate requests and make distributions only as permitted, documenting decisions and balancing competing beneficiary needs.
• Books, records, and documentation: Maintain thorough written records, track receipts/ disbursements, distinguish income vs. principal, and keep support for each material action.
• Beneficiary communication and reporting: Provide required notices, periodic statements, and accountings to keep beneficiaries reasonably informed.
• Tax compliance: Obtain a tax ID if needed, file fiduciary returns, pay taxes, and deliver beneficiary tax reporting.
• Asset inventory and valuation: Secure appraisals when appropriate, and document fair market values (including date-of-death values when applicable).
• Death and trust wrap-up: Collect benefits, pay final expenses, confirm whether probate is required, and prepare final accountings and distributions.

Grantors sometimes opt for a friend or relative who’s typically an attorney, CPA, or business owner, sometimes as a way of honoring them or even returning a favor. There are surely some potential advantages to choosing an individual, including:

• Alignment with your values and goals: An individual trustee may be better attuned to your priorities and with the needs and personalities of the beneficiaries (typically the grantor’s spouse or partner, and their children).
• Insight into family dynamics: The trustee may be able to anticipate and navigate family friction, defuse conflict, facilitate communication, and support smoother decision-making when beneficiaries’ interests diverge.
• Willingness to waive compensation: If the trust is relatively simple, an individual trustee may be willing to serve without being paid, which can reduce administrative costs and preserve more assets for beneficiaries.

Some trusts can be extremely complex, however. In those cases, there may be downsides to selecting an individual for the important trustee role, such as:

• Administrative burden and time commitment: An individual trustee may not have the breadth of administrative infrastructure—or the time required—to master the disciplines and carry out the responsibilities outlined above.
• Keeping up with changing tax rules: Trust tax and reporting rules can change frequently, and an individual trustee may miss filing requirements, lose planning opportunities, or incur penalties.
• Potentially higher all-in costs: If the trustee needs to retain outside attorneys, CPAs, and investment managers to assist with administration, the total cost may be comparable to or higher than a corporate trustee, even if the individual serves without compensation.
• Continuity and succession risk: Trusts often last for decades, so there needs to be a plan for a successor in the event the individual trustee resigns, becomes incapacitated, or dies.
• Impartiality and relationship undercurrents: A trustee must treat beneficiaries equally and communicate consistently with all parties, which can be difficult when long-standing family relationships and perceptions influence judgment. 

A corporate trustee is a trust company or financial institution with specialists who perform the necessary and voluminous tasks. Corporate trustees can add value particularly with sophisticated structures that demand experience, professional oversight, and a broad knowledge base covering:

• Institutional expertise: Dedicated professionals who are authorities in fiduciary law, investing, accounting, and taxation are better equipped to handle complex trusts and specialized assets.
• Jurisdictional flexibility: In some trust-friendly states (for example, Delaware), a resident corporate fiduciary may be required to serve as trustee.
• Continuity across generations: Unlike individuals where there are death or incapacity concerns, corporate trustees can provide seamless multigenerational oversight without the need to name a successor.
• Objectivity and impartiality: Professional fiduciaries are positioned to apply the trust’s standards consistently, treat beneficiaries evenhandedly, maintain confidentiality, and exercise disciplined judgment.
• Prudent asset management: Corporate trustees will have experience in acquiring, holding, selling, and investing trust property responsibly, which is especially important with illiquid, concentrated, or otherwise complex holdings.
• Administrative capacity and reporting: Processes are in place to maintain accurate books and records, track income vs. principal, process transactions, prepare statements and accountings, and communicate regularly with beneficiaries.
• Tax compliance support: They are experienced in preparing fiduciary returns, beneficiary reporting, and coordinating or providing tax planning services.

Wealthy families are generally best served by a carefully vetted professional trustee, given the technical demands and long-time horizons many trusts involve. That said, another workable option is to appoint co-trustees—often a trusted individual alongside a corporate fiduciary—so you pair family context with professional administration and continuity.

This structure can blend judgment informed by relationships and values with an institution’s resources and objectivity. If you choose co-trustees, clearly define each party’s responsibilities and how decisions are made (including any tiebreaker or areas where one trustee has final authority). And regardless of whom you appoint, consider adding a clear mechanism—exercisable by a beneficiary or a third party—for removing and replacing a trustee under defined circumstances.

This article is for informational purposes only and is not intended as an offer or solicitation for the sale of any financial product or service. It is not designed or intended to provide financial, tax, legal, investment, accounting, or other professional advice since such advice always requires consideration of individual circumstances. If professional advice is needed, the services of a professional advisor should be sought.

Note that tax, estate planning, and financial strategies require consideration for suitability of the individual, business, or investor, and there is no assurance that any strategy will be successful.

Wilmington Trust is not authorized to and does not provide legal or tax advice. Our advice and recommendations provided to you are illustrative only and subject to the opinions and advice of your own attorney, tax advisor, or other professional advisor.

Please complete the form below and one of our advisors will reach out to you.