What is the difference between a trustee and a custodian?

Written by eric novinson
  • Share
  • Tweet
  • Share
  • Pin
  • Email
What is the difference between a trustee and a custodian?
Trustees and custodians look after other people's assets. (ezza116/iStock/Getty Images)

A trustee manages assets for the beneficiaries of a trust, estate or other party. A custodian is the organisation that actually holds the assets. A trustee can leave the assets in the custody of a bank or other institution. The bank secures the assets, but as a custodian it does not receive authority to make management decisions, such as which shares or bonds to purchase with the money in the trust.

Other People Are Reading

Fiduciary responsibility

The trustee must make investment decisions that are in the best interest of the beneficiaries. The beneficiaries can sue the trustee if the trustee makes an irresponsible decision. A custodian has to protect the assets from theft, but the custodian does not have fiduciary responsibilities to the beneficiaries. This means that a custodian must conduct a financial transaction for the trustee even if the custodian believes it is a bad decision.

Authorisation

A trust agreement lists the trustee and gives the trustee authority over the trust assets. The trustee can select another organisation, such as a bank, to act as the custodian for the stocks, bonds or other instruments in the trust. The trustee can also withdraw the assets from one bank and place them in another bank, which changes the custodian of the assets.

Types of trustees and custodians

A trustee can be an individual, a stockbroker, a bank or any other organisation that has the right to govern a trust. The custodian is usually a bank, but can be a building society, a stock brokerage or another organisation that stores money or financial instruments for its account holders. A trustee can also be the custodian of the trust accounts, such as a bank that serves as a trustee and holds the funds in a current account.

Conflict of interest

A bank that serves as a trustee may not be able to place the trust assets in certain accounts that it controls. If the bank receives a commission when a customer purchases shares of a mutual fund, or buys an insurance policy, then the bank has a conflict of interest if it uses the money in the trust to buy its own financial products. If these types of investments would provide the best return for the beneficiaries of the trust, then the bank can purchase similar products from a different bank, which becomes the custodian.

Don't Miss

Filter:
  • All types
  • Articles
  • Slideshows
  • Videos
Sort:
  • Most relevant
  • Most popular
  • Most recent

No articles available

No slideshows available

No videos available

By using the eHow.co.uk site, you consent to the use of cookies. For more information, please see our Cookie policy.