Legal-Ease: Are my personal/trust assets at risk for my trustee to abuse?

Selecting trustees of trusts is an important task for anyone who establishes a trust. Confusion regarding the exact roles and powers of a trustee can make that important trustee-selection decision unnecessarily stressful or worrisome.

To understand what a trustee does, it is important to understand what roles people play as to trusts.

It is easiest to think of a trust as a set of rules. A person, couple of people or group of people can establish a trust/set of rules. The people who set up a trust are called the interchangeable names of “trustmaker,” “grantor” or “settlor.”

The rules of a trust are written to apply to certain assets (real estate, personal property etc.) that are titled or otherwise conveyed/transferred to be subject to the rules of the trust.

The trustee of a trust is simply the “administrator” of the trust. Often, especially for trusts that are not intended to protect assets from nursing home care (Medicaid recovery), the trust’s grantors are the trustees of the trust.

The owners of the assets in a trust are not called the “trust owners.” Instead, the owners of the assets that are subject to the rules of a trust (which ownership, the trust rules themselves can allow to change over time) are called “beneficiaries.”

Assets that are titled or conveyed to a trust are literally titled in the name of the person who is the trust administrator/trustee, with the title “trustee” printed after the person’s name. This makes it clear that the trustee is not the literal owner of the assets in the trust. The trustee is the named “administrator” for the rules that define who is the owner of a trust.

Depending upon the trust’s rules, the trustee (trust administrator) may or may not also be a beneficiary (owner) of the trust.

In summary:

• Set of rules: trust

• Writer/creator of the rules: trustmaker/grantor/settlor

• Administrator of trust rules: trustee

• Owner of assets in the trust: beneficiary

The role of trustee is an important role, especially if the grantors themselves are not the trustees. A trustee should be responsible and competent in order to faithfully and properly follow all of the rules of the trust.

However, the trustee of a trust is an administrator. Similar to the administrator of my law firm office who administers assets owned by me/my law firm, a trustee is the administrator of the assets in a trust.

My law firm office administrator needs to be professional, competent, honest and trustworthy. My law firm office administrator can sign checks from my account, negotiate contracts (like subscriptions) on my behalf and otherwise handle a lot of other administrative duties for my business without owning my business.

I do not worry about my law firm administrator getting divorced and having to give part of my law firm office’s assets to the administrator’s impending former spouse. Similarly, a trustee is not empowered just willy-nilly to take assets from a trust inconsistent with the trust rules to pay for a personal financial obligation or other inappropriate expenditure of my administrator.

Lee R. Schroeder is an Ohio licensed attorney at Schroeder Law LLC in Putnam County. He limits his practice to business, real estate, estate planning and agriculture issues in northwest Ohio. He can be reached at [email protected] or at 419-659-2058. This article is not intended to serve as legal advice, and specific advice should be sought from the licensed attorney of your choice based upon the specific facts and circumstances that you face.