As trustee, you occupy a position that comes with many responsibilities and important duties. In serving as a trustee, you stand in a special relationship of fiduciary responsibility to the beneficiaries. It is crucial that you understand the terms of the trust, to whom you owe these very important fiduciary and other duties, and that you adhere to your responsibilities.
An irrevocable trust is one that generally cannot be modified. An irrevocable trust could be a trust that became irrevocable upon the death of the person who created the trust or could have been created as an irrevocable trust from its inception.
Follow the Trust Terms
One of the most fundamental duties is to administer (or manage) the trust according to its term. The terms of the trust include the trust document as well as any amendments. By following the terms of the trust, you carry out the settlor’s written wishes and the purpose of the trust. To comply with this duty, you need to read and understand the trust terms, including the duties and powers set forth in the trust document.
Complying with this duty can be complicated. Your duty is to follow the terms as set forth in the trust. You are not to look at other documents or base your decisions on prior statements from the settlor where those contrast with the trust terms.
Act in the Best Interest of the Trust
Perhaps just as important is the duty to follow the trust terms is the duty to administer the trust solely in the best interest of the trust and the beneficiary. This means that you cannot put your interests above those of the trust or any of the beneficiaries (even if you are also a beneficiary). You must not deal with trust property for your own profit (ie self dealing) or for any purpose unconnected with the trust. You cannot take part in any transactions in which you have an interest adverse to any beneficiary. Adhering to these duties can be particularly difficult where the trustee is also a beneficiary. Such a conflict should not be ignored.
Furnish Information and Communicate
You have a general duty to keep the beneficiaries informed about the trust and its administration. This includes providing information about the trust and its assets informally as well as providing more formal reports, if requested by the settlor, as well as formal financial accountings if not waived by the trust document or by a beneficiary in writing. For further discussion of reporting and accounting duties see the separate article Does a Trustee Have to Provide an Accounting?
Do Not Commingle Trust Assets with Other Assets
You must avoid mixing or commingling trust assets with other non-trust assets, especially your personal assets. You should take steps to avoid commingling of assets. You should maintain separate bank accounts for trust cash and income that are distinct from your personal accounts and appropriately titled as trust property. You should also make sure that other trust assets are titled in your name as trustee of the trust and not held by you individually.
Deal Impartially with Beneficiaries
You must generally, unless the trust terms say otherwise, deal impartially with the trust beneficiaries. This means, for example, you must act impartially when making investment or distribution decisions pertaining to the interests of lifetime beneficiaries versus remainder beneficiaries as well as decisions pertaining to beneficiaries of the same class.
Make Trust Assets Productive
You have a duty to make prudent investments and to take action to make the trust assets economically “productive”. Compliance with this duty will mean different things depending on the type of asset, the circumstances, and the purpose of the trust. You have a duty to invest and manage trust assets as a prudent investor would by considering the purposes, terms, distribution requirements, and other circumstances of the trust. You must exercise reasonable care, skill, and caution in making investment and asset management decisions.
For example, let’s say the trust has real estate. You must take steps to ensure that the property is maintained and does not become deteriorated and that it does not sit vacant for too long. You should give consideration to the purposes of the trust and then make a decision to either sell or rent the property.
Keep Detailed Trust Records
You should maintain a file or files to hold important trust related documents. Among the important records to keep are:
- the trust and any amendments to the trust
- prior directives from the settlor
- court filings and orders related to the trust
- documents related to the assets of the trust (ie bank statements, mortgage statements, investment records, asset lists)
- transmissions of information to the beneficiary
- accountings and papers related to accountings (ie those used to prepare the accountings)
Keeping good trust records is important for several reasons. You want to make sure you have the proper records to prepare the formal financial accountings required. Also, in the event that a beneficiary challenges an accounting or an act or decision that you made, if records are not kept and/or an accounting or report is not provided, all presumptions will be against you and all doubts arising from the failure to keep records will be resolved against you.
Powers of Trustee
As trustee, you have certain powers granted to you by the trust document itself as well as California law. These powers are what enable you to perform your duties and to achieve the objectives of the trust. It is important to understand that there are very important limitations on what you can and cannot do.
To understand your powers as a trustee, you should start with the trust instrument. Generally, the trust instrument will set forth the powers available to be used as appropriate to carry out your duties. A trustee also has powers set forth in the California Probate Code, unless expressly limited by the trust instrument. Typical powers include the ability to invest trust property, to sell trust property, to acquire trust assets, to borrow funds on behalf of the trust, to make distributions, to operate a business owned by the trust, to make loans to beneficiaries, and to hire persons to assist in the administration of the trust.
The above is meant to be an overview of some of a trustee’s most important duties and powers. Contact Galati Law to review the trust terms and for a deeper understanding of your duties as they pertain to your particular situation.