< ESTATE PLANNING & TRUSTEES

THE GENERAL DUTIES OF A TRUSTEE AND A TRUSTEE'S OBLIGATION TO BENEFICIARIES
- Contributed by MontereyTrust.com

A Trustee is a person or bank – or a combination of both – that the Grantor of a trust “entrusted” to carry out their last wishes. Before trusts became so popular, a person would name an Executor under their Will to carry out their final wishes, but with a Trust, that person or bank is referred to as a Trustee. The Trustee accepts a very special responsibility when stepping in as Trustee and owes a duty to both the Grantor and to the beneficiaries of the trust.

A Trustee who thinks of himself or herself as controlling the relationship pr as “owning” the assets of the Trust is setting themselves up for problems. The relationship between Trustee and beneficiary should be open and communicative and the beneficiary is entitled to information about the trust, as outlined below.

The Trust document outlines how the assets are distributed and to whom and, absent language in the document, is governed by California Probate Code (provided it is a California trust). Issues such as taxes may be governed by the Federal tax code. A trust cannot contain instructions that are illegal or contrary to public policy.

The duties outlined below are not exhaustive and are generally taken from the California Probate Code. The full text of the code can be reviewed on-line or at the library.

Duty to Administer by Trust Terms: When the trustee steps into office, they accept the obligation to carry out the terms of the trust. If the trust document does not fully describe certain actions, the trustee then relies on the Probate Code. A Trustee can also seek instruction from the Court when needed. The Trustee is held to a high standard of care and is held strictly accountable for actions taken while acting as trustee.

Duty to Deal Impartially with Beneficiaries: If a trust has more than one beneficiary, the trustee cannot invest, distribute or otherwise favor one beneficiary over another unless the trust document allows the trustee to do so.

Duty of Loyalty: The Trustee is obligated to administer the trust solely in the interests of the beneficiaries and cannot engage in any act that puts his or her personal interests in conflict with those of any of the trust beneficiaries.

Duty to Avoid Conflicts of Interest: A trustee cannot deal with trust property for the trustee’s own profit or for any other purpose unconnected with the trust, nor take part in transactions in which the trustee has an interest adverse to the beneficiary.

Duty to Make Trust Property Productive: A trustee has a duty to make the trust property productive. For instance, the trustee cannot let real estate deteriorate or sit vacant for long periods of time. The property should be sold or rented after consideration of the purposes of the trust. Language in the Trust can instruct or protect the Trustee with regard to the holding of unproductive property.

Duty to Defend Action: The Trustee has a duty to take reasonable steps to defend actions that may result in a loss to the trust. (Examples: trust contests or other claims against the trust).

Duty to Avoid Improper Delegation and Supervise Performance of a Delegated Matter: A trustee may not delegate to others the performance of acts that a trustee can reasonably personally perform and may not transfer the office of trustee to another person or delegate the entire administration of the trust to a co-trustee or other person. If a Trustee delegates certain actions, they have the obligation to supervise those actions and are held accountable for the actions taken by another.

Standard of Care – Prudent Person: The trustee shall administer the trust with the reasonable care, skill, and caution under the circumstances then prevailing that a prudent person acting in a like capacity would use.

Uniform Prudent Investor Rule: A trustee who invests and manages trust assets owes a duty to the beneficiaries of the trust to comply with the prudent investor rule. The trust document may expand or restrict the prudent investor rule and the trustee is not liable to a beneficiary for the trustee’s good faith reliance on these express provisions.

(1) The trustee shall invest and manage trust assets as a prudent investor would, by considering the purposes, terms, distribution requirements, and other circumstances of the trust.
(2) Actions are not evaluated in isolation. All assets of the Trust are to be considered as a whole and part of an overall investment strategy having risk and return objectives reasonably suited to the trust.

(3) The circumstances the Trustee is to consider when making investment decisions include but are not limited to the following:

a. General economic conditions.
b. Possible effect of inflation or deflation.
c. The role that each investment or action plays within the overall trust portfolio.
d. The expected total return from income and the appreciation of capital.

(4) The Trustee is to consider the needs or liquidity, regular income and preservation of capital and should consider the special relationship or special value, if any, of certain assets.

(5) A Trustee has a duty to diversify the investments of a trust unless, under the circumstances, it is prudent not to do so.

(6) A trustee may delegate investment and management functions as prudent under the circumstances.

Duty to Inform Beneficiaries: A trustee has a duty to keep the beneficiaries of the trust reasonably informed of the trust and its administration.

Duty to Give Notices: A trustee shall serve notification on the beneficiaries of a trust when a revocable trust becomes irrevocable, where there is a change of trustee, when there is a change of trustee fees and other events as set forth in the trust document.

Trust law continues to evolve and change. The area of estate planning, trust administration and taxation is the most heavily litigated area of the law. It is important to work with good legal council when making an estate plan, performing duties as a trustee, or doing tax planning.