Whether you need to select a trustee, you have recently become a trustee, or you are a beneficiary of a trust, you can benefit from knowing the duties of the trustee. This article reviews some of the duties of a trustee in order to provide a clear understanding of what the job entails.

Generally, the first task requires the trustee to read the trust documents. That may sound obvious, but sometimes the trust document contains daunting language and confusing terms. However, in order to understand what the trust requires and what it permits a trustee to do, both the trustee and the beneficiary should read the trust documents — or work with their attorneys to understand the requirements.

To avoid contention between the trustee and beneficiaries, everyone must note the discretion provided to the trustee concerning decision making — including, but not limited to, investment and distribution decisions. For example, the beneficiary may accuse the trustee of abusing the trustee’s discretion, in addition to not properly following the terms of the trust if the trustee’s discretion has not been made clear.

Common law, as well as trust law coded within your particular jurisdiction, determines trust duties. However, the following list provides some of the general duties:

1. A trustee has a duty to administer the trust in accordance with its terms as discussed above.

2. A trustee must have a duty of loyalty to the beneficiaries. A trustee must act in the best interests of the beneficiary (or beneficiaries) and not in the trustee’s own self-interest.

3. A trustee has the duty to carry out the management of the trust without imprudently delegating a task. Likewise, a trustee has a duty to manage and review the activities of other professionals hired to help manage the trust, including investment advisors, accountants, property managers, and attorneys.

4. The trustee has a duty to keep records and provide an accounting, usually on an annual basis.

5. A trustee must provide information to beneficiaries, including a copy of the trust document and the financial information, including material transactions.

6. The trustee has a duty to exercise reasonable care as a fiduciary — meaning that the trustee should make decisions with discretion and intelligence.

7. When it comes to trust property, the trustee has a duty to take control. In other words, the trustee must have the titles of property transferred to the trustee for the benefit of the trust. The trustee must not fail to complete this step because if the property is not in the trustee’s name on behalf of the trust, the trust is not funded with the assets. An unfunded trust fails.

8. A trustee must be impartial. There is a duty of impartiality among beneficiaries whether they are income beneficiaries or remaindermen (those who may receive the assets when the trust terminates). This also can be contentious because an income beneficiary can claim that the trustee favors the remainderman or vice versa.

9. A trustee has a duty to account for activities among co-trustees. This can cause problems if multiple trustees complete certain trust tasks but do not cooperate or inform the other trustees.

10. The trustee has a duty to prudently invest and make property productive. When it comes to investing, a trustee cannot be passive. Investment decisions must be made prudently following the terms of the trust.

11. A trustee has a duty to act in good faith. The trustee should always act in a transparent and honest manner.

Overall, a trustee has a fiduciary duty to the beneficiaries of the trust, which puts the trustee in a role that requires due diligence, restraint, prudence, and fairness.

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Our firm provides the information in this article for general guidance only, and does not constitute the provision of legal advice, tax advice, accounting services, investment advice or professional consulting of any kind. The information provided herein should not be used as a substitute for consultation with professional tax, accounting, legal or other competent advisors. Before making any decision or taking any action, you should consult a professional advisor who has been provided with all pertinent facts relevant to your particular situation. Tax articles are not intended to be used, and cannot be used by any taxpayer, for the purpose of avoiding accuracy-related penalties that may be imposed on the taxpayer. The information is provided “as is,” with no assurance or guarantee of completeness, accuracy or timeliness of the information, and without warranty of any kind, express or implied, including but not limited to warranties of performance, merchantability and fitness for a particular purpose.

 

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