The term trustee refers to an entity that is responsible for holding and maintaining assets on behalf of a beneficiary. The trustor is the person or business that gifts assets to a trust, while the trustee is responsible for its safekeeping.
A trustee can be an individual or financial institution that has a fiduciary responsibility to a trustor. The roles trustees can play range from their appointment as part of a bankruptcy proceeding, or managing retirement plans for large corporations, through the oversight of the assets placed in a trust for a single beneficiary.
In fact, they play one of the three essential roles when establishing a trust:
- Trustor: the party that donates the assets to the trust.
- Trustee: the party that has a fiduciary responsibility to protect the assets of the trust.
- Beneficiary: the party that benefits directly from the assets placed in the trust.
Trustees are utilized when it is advantageous to move the responsibility for assets away from the beneficiary. For example, a trust may be established on behalf of a minor. Finally, a trustee has a fiduciary responsibility to the beneficiary of a trust. They are governed by laws as well as a code of ethics.