How to Be a Trustee: Duties, Responsibilities, and Pitfalls

7 min read · Updated June 13, 2026

Being named a trustee by someone you care about is a significant expression of trust. It is also a legal appointment that carries substantial responsibilities and personal liability. Many people accept the role without fully understanding what they are agreeing to — and some find themselves in legal disputes with beneficiaries as a result.

This guide explains what trustees are actually required to do, what the law prohibits, and how to navigate the role effectively.

What Is a Trustee?

A trustee is the person or institution responsible for managing trust assets for the benefit of the trust’s beneficiaries according to the terms of the trust document and applicable law.¹ The trustee holds legal title to the trust’s assets, but the right to benefit from those assets belongs to the beneficiaries.

Revocable living trusts: The person who created the trust (the grantor or settlor) typically serves as their own trustee during their lifetime. You become a successor trustee when the original trustee dies or becomes incapacitated.

Irrevocable trusts: A separate trustee — often an individual or corporate trustee — manages the trust from the start.

Testamentary trusts: Created by a will, these take effect at death; the trustee named in the will takes over at that point.

The Fiduciary Standard

The foundation of trusteeship is the fiduciary duty — a legal obligation to act in the best interests of the beneficiaries, not yourself.² The Uniform Trust Code, adopted in the majority of states, codifies specific duties that every trustee must meet.³

Breach of fiduciary duty exposes you to personal liability. Courts can order a trustee to reimburse the trust for losses caused by a breach, disgorge any profits they made from their position, and pay attorney’s fees.

The Core Duties of a Trustee

Duty of Loyalty

You must administer the trust solely in the interests of the beneficiaries.⁴ You cannot:

• Use trust assets for your own benefit
• Buy trust property for yourself at a discount
• Make loans to yourself from the trust
• Do business with the trust in your personal capacity without court approval or beneficiary consent
• Favor some beneficiaries over others (unless the trust authorizes it)

Self-dealing — using your position as trustee for personal gain — is the most common source of trustee liability and can result in removal, surcharge, and in extreme cases criminal prosecution.⁵

Duty of Prudent Investor

The Uniform Prudent Investor Act (UPIA), adopted in 45 states, requires trustees to invest trust assets as a prudent investor would — considering the overall portfolio, risk and return objectives, and the specific needs of the trust and its beneficiaries.⁶

Key requirements:

• Diversify investments unless there is a good reason not to⁷
• Consider the trust’s purpose, time horizon, and beneficiary needs
• Avoid excessive fees and transaction costs
• Document your investment rationale

Simply parking money in a savings account is typically not prudent investment — it may actually violate the duty if the trust has a long time horizon and beneficiaries who need growth.

You are not required to be an investment expert. You can delegate investment functions to a professional investment manager; trustees who do so in good faith and with appropriate oversight are protected.⁸ But you remain responsible for monitoring the manager.

Duty to Inform and Report

Beneficiaries have the right to know what is in the trust and how it is being managed.⁹ Trustees must:

• Respond to reasonable requests for information
• Provide an annual accounting — a complete record of trust assets, income received, expenses paid, and distributions made
• Notify beneficiaries of relevant events (acceptance of trusteeship, significant changes in trust assets)

Failing to provide accountings is one of the most common complaints that beneficiaries raise against trustees.

Duty of Impartiality

When a trust has both current beneficiaries (who receive income) and remainder beneficiaries (who receive what is left eventually), you must balance their competing interests fairly.¹⁰ A current income beneficiary might prefer the trust to hold high-yield bonds; a remainder beneficiary might prefer growth stocks. Your job is to find the appropriate balance based on the trust document and applicable law, not to favor one group.

Duty to Administer Personally

You must personally manage the trust. You can delegate certain functions — investment management, tax preparation — to professionals, but you cannot hand off the trustee role entirely.¹¹

Practical Responsibilities

Getting Organized

When you take over as trustee:

1. Obtain a certified copy of the trust document and read it completely
2. Open a trust bank account in the trust’s name (e.g., “The Smith Family Trust, Jane Smith, Trustee”)
3. Get a Tax ID (EIN) for the trust from the IRS if the trust is irrevocable or if the grantor has died¹²
4. Gather and inventory all trust assets — real estate, financial accounts, personal property, business interests
5. Retitle assets that are not already in the trust’s name
6. Notify financial institutions of the change in trustee if you are a successor trustee

Tax Obligations

If the trust is irrevocable or if you are serving as successor trustee after the grantor’s death, the trust is a separate tax entity and must file its own tax return:¹³

• Form 1041 (U.S. Income Tax Return for Estates and Trusts) if the trust has gross income over $600 or a beneficiary who is a nonresident alien
• Income distributed to beneficiaries is reported on Schedule K-1 and taxed at the beneficiary’s rate
• Income retained in the trust is taxed at the trust’s own compressed tax rates — which reach the top 37% bracket at just $15,200 of income in 2024¹⁴

Consider retaining a CPA experienced in trust taxation, particularly in the first year.

Record Keeping

Maintain complete records of:

• All trust assets and their fair market values
• All income received (interest, dividends, rent, capital gains)
• All expenses paid (legal, accounting, management fees, repairs)
• All distributions made to beneficiaries
• All investment decisions and the rationale for them

These records are essential for annual accountings and for defending yourself if a beneficiary challenges your administration.

Distributing Trust Assets

The trust document governs when and how you distribute to beneficiaries. Read it carefully. Common distribution standards include:¹⁵

• Mandatory income distributions: You must distribute all net income to current beneficiaries; no discretion
• Discretionary distributions: You have authority to distribute principal and/or income for specified purposes (health, education, maintenance, support — commonly called “HEMS”)
• Outright distribution: You distribute everything to beneficiaries at a specified time or event

Discretionary trustees must exercise their discretion in good faith and in accordance with the trust’s purpose — they cannot arbitrarily deny or make distributions.

When to Hire Professionals

You are not expected to be a lawyer, accountant, and investment advisor simultaneously. Hiring qualified professionals is a sign of prudent trusteeship, not incompetence. Consider engaging:

• Estate attorney for trust administration questions, real estate transfers, and contested situations
• CPA for annual trust tax returns (Form 1041) and any real estate-related tax issues
• Investment advisor for portfolio management (ensure they understand they are working for the trust, not for you personally)

Professional fees are paid from trust assets, not from your personal funds.

Resigning as Trustee

If you find you are unable or unwilling to continue, you can resign. The Uniform Trust Code generally requires you to provide reasonable notice to co-trustees and qualified beneficiaries before resigning.¹⁶ You may not simply walk away and leave trust assets unmanaged.

Make sure a successor trustee is in place — either named in the trust document or appointed by a court — before your resignation is effective.

References

1. Cornell Law School Legal Information Institute, “Trustee,” law.cornell.edu/wex/trustee
2. Cornell Law School Legal Information Institute, “Fiduciary duty,” law.cornell.edu/wex/fiduciary_duty
3. Uniform Trust Code, uniformlaws.org/committees/community-home?CommunityKey=193ff839-7955-4846-8f3c-ce74ac23938d
4. Uniform Trust Code § 802, “Duty of loyalty”
5. Bogert, Trusts and Trustees § 543 (citing cases on self-dealing liability)
6. Uniform Prudent Investor Act § 2, “Standard of care; portfolio strategy; risk and return objectives,” uniformlaws.org
7. Uniform Prudent Investor Act § 3, “Diversification”
8. Uniform Prudent Investor Act § 9, “Delegation of investment and management functions”
9. Uniform Trust Code § 813, “Duty to inform and report”
10. Uniform Trust Code § 803, “Impartiality”
11. Uniform Trust Code § 807, “Delegation by trustee”
12. Internal Revenue Service, “Employer ID Numbers,” irs.gov/businesses/small-businesses-self-employed/employer-id-numbers
13. Internal Revenue Service, “Abusive Trust Tax Evasion Schemes — Questions and Answers,” irs.gov; Form 1041 instructions, irs.gov/pub/irs-pdf/i1041.pdf
14. Internal Revenue Service, Revenue Procedure 2023-34, “2024 Adjusted Items,” irs.gov
15. Restatement (Third) of Trusts § 50 (discretionary trusts)
16. Uniform Trust Code § 705, “Resignation of trustee”

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