If you are creating a living trust, the person you select as your trustee matters a great deal. Trustees in California are tasked with many responsibilities and legal duties pertaining to the management and distribution of trust property. The decisions made by your trustee can affect you during your lifetime, as well as how your beneficiaries receive their inheritance when you pass away.
There are many specific responsibilities that go into managing a trust and administering it upon its creator's death, but there are a few overarching duties every person creating a trust should be aware of. Understanding the legal and ethical responsibilities a Trustee must handle can add a lot of clarity to the process of selecting the right trustee.
After reviewing the duties below, get in touch with our estate planning attorney if you wish to create a trust, or if you wish to update an existing trust by changing your trustee to someone you feel would be more suitable for this important role.
1. Duty of Loyalty
A trustee must act in the best interests of the trust's beneficiaries. In a revocable trust, the trust creator (called the “Grantor” or “Settlor”) is also the trust beneficiary as well as the initial trustee. However, if the grantor becomes incapacitated – the named successor trustee takes over the trust, and owes a duty of loyalty primarily to the grantor, and secondarily – to the residual beneficiaries of the trust (the people named to receive trust property after the Grantor dies. When the grantor dies, the Trustee's duties are entirely to the residual beneficiaries.
2. Duty of Impartiality
Trustees must remain impartial when it comes to dealing with beneficiaries. If a trustee treats one beneficiary differently from another, or gives “preferential treatment” to one beneficiary over another - they are in breach of this duty. Trustees must ensure their actions align with the best interests of all of the beneficiaries. This could be especially challenging if the trustee is also one of the named beneficiaries, as is often the case with family trusts. Having the guidance of an attorney in this regard could be very beneficial for trustees who may be grappling with a challenging family dynamic.
3. Duty to Avoid Conflicts of Interest
Trustees are obligated to avoid conflicts of interest that could interfere with their management or administration of a trust. Personal or professional matters that affect the trustee, such as an investment opportunity or strife with a beneficiary, should not affect the decisions the trustee makes. Most importantly, trustees may not benefit themselves as a result of having the “position of power” that they occupy.
4. Duty of Disclosure of Information
It is the law that Trustees should keep beneficiaries reasonably informed of the status of the trust administration, the assets, income and expenses of the trust, and all important decisions pertaining to the trust management and distribution. This is one of the most inadvertently “violated” duties by trustees who are not represented by an attorney; it is also a main reason why a trust beneficiary ends up hiring an attorney – because a trustee fails to provide requested information or the trust document itself. Trustees are mandated to provide requested information (including a copy of the trust) within 60 days of receipt of a written request for information from a beneficiary. Most importantly, trustees are mandated to give a statutory Notification by Trustee and a copy of the Trust relatively quickly after certain events take place. Having an attorney guide the Trustee is invaluable when it comes to avoiding a breach of this duty.
5. Duty Not to Delegate
A trustee is someone specifically selected to manage trust property. While trustees are fully permitted to hire financial advisors, attorneys, book keepers, CPAs, realtors, etc., professionals to assist them with their duties, trustees may not delegate their responsibilities or authority to any other person. Moreover, when co-Trustees are acting together, both co-Trustees are equally liable for breach of duties, even if only one of the co-Trustees acted on behalf of the trust and breached a duty.
6. Duty to Enforce or Defend Claims
Managing trust property also means defending it against claims that could generate loss and enforcing claims that could add or recover property that should go in the Trust. Because enforcing and defending claims can be costly, trustees aren't responsible for enforcing or defending every claim. They must instead gauge the cost-effectiveness of doing so. In this regard, advice of counsel can be especially valuable to a trustee. All actions taken on behalf of the trust are an “expense” of the trust.
7. Duty to Keep Trust Assets Separate from trustee's own property
Trustees may be dealing with many different types of assets, but at no point should the trustee commingle trust property with the trustee's own property (for example, deposit sums drawn from trust accounts into his/her own personal account). Commingling is not only improper, but it can also put the trust property at risk from the trustee's own creditors. Commingling trust property with that of the trustee is a serious breach of this duty that can quickly land the trustee in hot water, including – it can render a trustee removed and surcharged (fined) by the court, and/or stripped from receipt of any trustee fees.
Build Your Trust with Confidence
If you need help with establishing a trust or deciding on how to select your trustee, you can rely on the Law Offices of Maria N. Jonsson, PC for assistance. If you are named as Trustee in a trust, and you have to step in because the Grantor has become incapacitated or has died – you should be wise to retain an attorney to guide you through the many rules, duties and liabilities placed on the Trustee, as well as time-sensitive legal notices and filings a trustee is responsible for. The Trustee is entitled to compensation because being a trustee is not “job” that can be taken lightly. It is an important legal title that carries with it a lot of personal and professional liabilities.
Our attorney has many years of experience that can help guide clients toward making the decisions that are best suited for their unique circumstances. We also help guide Trustees with the efficient, smooth and speedy administration of the trusts they are put in charge of.
For more information and assistance, reach out to the Law Offices of Maria N. Jonsson, PC today by contacting us online.