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An individual or corporation named by an individual, who sets aside property to be used for the benefit of another person, to manage the property as provided by the terms of the document that created the arrangement.
A trustee manages property that is held in trust. A trust is an arrangement in which one person holds the property of another for the benefit of a third party, called the beneficiary. The beneficiary is usually the owner of the property or a person designated as the beneficiary by the owner of the property. A trustee may be either an individual or a corporation.
Trusts are useful for investment purposes, and they offer various tax advantages. Another purpose of trusts is to keep the trust property, usually money, out of the hands of the owner. This may be desirable if the beneficiary of the trust is incompetent, immature, or a spendthrift.
Trustees have certain obligations to the beneficiary of the trust. State statutes may address the duties of a trustee, but much of the law covering such obligations is often found in a state's case law, or court opinions.
A trustee is a fiduciary of the trust beneficiary. A fiduciary is legally bound to act, within the confines of the law, in the best interests of the beneficiary. A trustee is in a special position of confidence in relation to the beneficiary because the trustee has control of property that is essentially owned by the beneficiary.
Most trustees possess special knowledge about trusts and investments. By contrast, many beneficiaries are ignorant of such matters. This special knowledge is another feature of the trustee-beneficiary relationship that makes a trustee a fiduciary. A trustee must submit honest reports to the beneficiary and keep the beneficiary informed of all matters relevant to the trust.
Trustees must fulfill the terms of the trust, which address such matters as when and how the trust property will be given to the beneficiary and the kinds of transactions the trustee may conduct with the trust property. Unless the terms of the trust state otherwise, a trustee may invest trust property but must use reasonable skill and judgment in making the investments. In some states a trustee is required by statute to make certain investments under certain conditions, but most states let trustees decide on their own whether to invest the trust property. However, a trustee may not invest property if it is prohibited by the terms of the trust.
In bankruptcy cases a court may appoint a trustee to manage the funds of the insolvent party. Trustees who are appointed by bankruptcy courts are paid for their services from public funds. Trustees who manage trusts for private parties also are paid for their services, but their compensation comes from the creator of the trust or from the trust's funds.