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A trust is a fiduciary relationship between three parties. The first party (granter) nominally transfers assets to the second party (trustee) for the benefit of the third party (beneficiary). The specific details of a trust are included in a document much like a will. It contains instructions on how the trustee should handle the assets and who should receive the assets after the death of the grantor.
For a trust to be operational, you must transfer assets from your name to the trust. Since the assets don’t appear under an individual’s name, there will be little interference from the courts in case of incapacity or death. This article will outline some of the duties of a trustee.
What is the Work of a Trustee?
When you pick someone to be a trustee, you are giving them the legal authority to manage your assets in case of your death or you become incapacitated in any way. They will take charge of all business transactions including receiving and depositing funds, paying bills, and using the assets to take care of you (when incapacitated) and your dependents until the time you recover or die.
Since the trustee will have full legal authority, you should find someone who is competent enough to handle the responsibility and whom you can trust to have your interest and that of the beneficiaries at heart. But what are the duties of a trustee?
Seven Duties of a Trustee
1. Act in Accordance with the Trust Rules
Once the trustee assumes responsibility, they are obligated to carry out your wishes as stipulated in the trust document. They should act within the limits of the specified rules and procedures when discharging their duties. Although they are allowed to delegate some of the responsibilities to others, the law will still hold them personally responsible in case something goes wrong.
The trustee’s ultimate obligation is to safeguard the interests of the beneficiaries. If they follow external advice blindly without determining its suitability for the beneficiaries, they will be liable for the losses incurred and breach of trust during this lapse in judgment.
2. Show Loyalty to Beneficiaries
Any action that the trustee makes must be in the best interest of the beneficiaries. They must show absolute loyalty. That means putting the interests of the beneficiaries well ahead of their own. In that case, the trustee should not conduct any transaction that will adversely affect the beneficiaries’ interests.
They shouldn’t engage in any self-dealing. For example, the trustee violates their duty of loyalty when they engage in any financial transaction pertaining trust property unless authorized by a particular provision in the trust, a court order or when all the beneficiaries consent to it.
3. Separate Trust and Personal Assets
The trustee must not mix trust assets with their own assets. They must have different investments, checking accounts, and earmark assets associated explicitly with the trust. If they fail to make this crucial distinction, they will be liable for any loss that the property might suffer regardless of whether it was their fault or not.
4. Invest in a Prudent Manner
This is one of the most important duties of a trustee. They should invest the trust assets prudently to generate income for the beneficiaries. They should also behave sensibly when managing, acquiring, and selling trust property. They should first gauge the suitability of any investment and seek proper advice when necessary.
The trustee must be cautious and should adhere to the objectives and distribution requirements of the trust. Some states will provide a statutory list of approved investments for trusts. Any trustee investing outside this list is taking risks. But even in cases where a list is available, the trustee should not invest blindly. They should diversify the investment portfolio to reduce the risk of loss.
5. Secure and Safeguard Trust Assets
After accepting your appointment, the trustee is obligated to control and take care of the trust property according to the terms stipulated in the trust agreement. They should collect all tangible property including land, personal property, and all documents representing intangibles such as stock certificates.
Additionally, they should enforce all rights and claims against any third parties. Any loss incurred because they delayed in taking control will be chargeable to them. They should also protect and safeguard the assets they collect since they will be held personally liable for any loss due to negligence.
6. Duty to Account
The trustee is merely fulfilling your wishes and not working for their benefit. They should, therefore, make regular accountings to the beneficiaries and keep precise records of all transactions, receipts, and expenditures. Additionally, they must make an accounting to the court periodically.
7. Treat All Beneficiaries Equally
The trustee should treat all the beneficiaries equally. They should exercise impartiality and not favor some over others. Unless you specifically allow them to offer preferential treatment in the trust, they must remain impartial at all times. In case they are unable to conduct their duties in good faith, they will be liable for any harm that befalls the beneficiary.
Qualities of a Good Trustee
If you want to ensure that details of the trust are executed according to your wish, pick the right trustee. Although the duties of a trustee might vary depending on the type of trust, you can never go wrong with the following qualities.
- Willingness – Whomever you choose should demonstrate the desire to undertake the duties.
- Readiness – Being a trustee is a complicated job that will take up a lot of time. Make sure your trustee has the time to undertake such a task.
- Reliability - There is just too much at stake. Choose someone on whom you can rely and who you know is a responsible professional.
- Unbiased Character – Your trustee should act only to serve the interests of the beneficiaries. Avoid people who may have a conflict of interest.
- Integrity – Choosing a trustee gives them legal authority. Pick someone who is unquestionably trustworthy.
In Conclusion
A trustee will be responsible for managing and distributing trust assets when you become incapacitated or after you die. Their role will be to execute your wishes in distributing income and assets to the beneficiaries. Given the critical role that they play, you should choose a trustee very carefully.
Make sure they are willing and able to undertake the duties of a trustee and that they will perform them with integrity and without any bias. Is choosing a trustee something you would consider? Please feel free to leave a comment below.