A trustee will be charged with managing the property under the terms of a trust document. The three choices for trustee are a bank or trust company, a private trustee or a charitable trustee for a trust that benefits charity.

A trustee has a particular name-a fiduciary. This means that the trustee is required under state law to provide appropriate management of the trust. Based on the trust document that you sign as the trust grantor, the trustee will do his or her best to follow your intent.

Trustee Vehicles

Property: The trust exists to hold and manage property. While in many states a trust is legally in existence after you sign the trust document, it doesn't actually have any purpose until it receives property. Your trustee refers to this as the "funding" of the trust. The trustee will manage the property according to the terms of your trust document.

Investments: Under state law, your trustee is required to follow the standards of a prudent investor. In most cases, the trustee will invest in a portfolio of stocks and bonds. Approximately 50% to 60% of the typical trust portfolio is invested in a diversified group of stocks, with the balance invested in bonds.

Under the prudent investor rules, the trustee is obligated to diversify. Through diversification the risk of loss will be reduced and the probability that the trust will function as you intend is greater.

Income: Income is defined under the law as either ordinary income or capital gain. The interest from bonds and mortgage notes is ordinary income. Historically, trusts have paid out their ordinary income. However, because many trustees now have more than half of the trust property invested in stocks, trusts now may pay out a portion of recognized capital gain as income.