Planning for when we are not here is not the most exciting nor enjoyable task. For that reason, it is understandable that many avoid doing so, with the Angus Reid Institute reporting that51% of Canadians don't have any plans in place at all.
The options for when you do decide to get your house in order are either a will or a trust.
While many of us are familiar with the functions of a will, a trust can seem more confusing. This can be even more so if someone asks you to become a trustee for them.
What Is a Trustee?
A trustee is someone who has been given the legal responsibility to look after the affairs of a trust. On the whole, this tends to include finances, physical and intellectual property, and any other things of value included within a trust.
The main purpose of choosing a trustee is for the person who creates the trust (the trustor), to feel confident, that someone will work on their behalf to carry out their wishes should they die or become incapacitated. In many cases, the added responsibility of making decisions on a day-to-day basis is not an issue, as the person who owns the assets is often the main trustee. Yet when they die, a successor trustee then takes over this role.
There are many different types, depending on the type of trust involved, such as an estate trustee, a bankruptcy trustee, a licensed insolvency trustee, and more.
A board of trustees who work together to fulfill the wishes of the trustor can also be set up. This is often the case in charitable or investment trusts.
A trustee's main responsibility in all cases, though, is to ensure that any beneficiaries, be they members of a family or other individuals are looked after according to the terms of the deed of trust.
So what happens if the trustee dies? Well, in most cases there are successor trustees included in the trust. However, if there isn't, the beneficiaries can have one assigned via the courts.
Trustee vs Executor: What Is the Difference?
While easily confused for being two different types of trustees, they are in reality two different roles.
An executor of an estate only steps in upon someone's death. For this to happen, a person has to designate an executor and include them in their will.
Once this happens, the executor has the responsibility to manage the estate and, most importantly, ensure that it is distributed according to the wishes of the deceased. They also have the responsibility of managing all aspects of the assets that haven't been assigned in a will, known as the person's residuary estate.
So what is a trustee in a will? Well as mentioned previously, once agreed, a trustee becomes involved in the affairs of the trustor while they are alive.
Another difference between the two is in the time that one has in the role. Once all assets have been distributed, then the position of an executor comes to an end. A trustee's term, on the other hand, is dependent on the trust. This could be until any children are 18, or a lifetime!
What Are the Responsibilities of a Trustee?
So what is the role of a trustee?
Well, expectations can vary according to the trust. For example, if a trust includes stocks and shares, there would be an expectation that trustees not only manage but seek to diversify and improve the value of the trustor's portfolio.
That being said, there are certain legal expectations of someone once they become a trustee at any level.
The most significant of them is their fiduciary duties. This means that a trustee is legally expected to take decisions and act in the best interests of any beneficiaries. A trustee therefore cannot have any conflicts of interest or seek to gain personally from the assets included in the trust.
Included in the duties of trustees is also a responsibility to keep good records, and understandably so. As they are working on the behalf of others, there is a need to always be ready to demonstrate that any actions that have been taken are in line with the deed of trust.
They are also the main points of contact for any beneficiaries. This means they have the responsibility of updating and informing them of changes to the value or state of assets included, with some choosing to do so in the form of periodic reports.
If a beneficiary feels that this is not happening, they are within their rights to look for how to remove a trustee, again highlighting the importance of trustees keeping good records to prove otherwise.
Who Can Be a Trustee?
The answer really lies in the responsibilities we have covered.
Becoming a trustee is a hefty responsibility and one that any trustor should give serious thought to giving.
What is an example of a trustee that most people opt for?
Although legally speaking you can make anyone a trustee, many people consider close family or friends. There are clear benefits to doing so. Choosing someone already in your inner circle means that they already know and understand family dynamics and the people involved.
Nevertheless, the chances of creating family drama, and even resentment towards a person that holds this position, are high.
Another option is to choose either a lawyer or a trust company to take up the role.
In this case, their priority is adhering to what is written in a trust. Therefore, you can trust them to look at any matters with an unbiased eye that can eliminate any potential conflicts.
They also don't have to concern themselves with common questions that those who are not legally versed may have, such as "How long does a trustee have to distribute assets?" or "Can a trustee appoint a power of attorney?"
It is worth noting, however, that going down this route is sure to affect the amount of money that a beneficiary will receive.
Are you incorporated in Canada?
Small business owners and incorporated individuals in Canada can use a Health Spending Account (HSA) to save on their medical expenses. An HSA is a cost effective alternative to traditional health insurance. The plan covers a wide variety of health and dental expenses. You could save thousands of dollars in taxes with an HSA.
Find out more about Health Spending Account (HSA), download my free guides: