What Are a Trustee’s Responsibilities and Roles When Administering a Trust?
- Keystone News
- 850 Petitions
- Attorney-Client Privilege
- Attorney's Fees
- Caretaker Issues
- Competency/Undue Influence
- Fiduciary Misconduct/Removal
- Lis Pendens
- Marriage and Community/Separate Property
- No Contest Clauses
- Non-Probate Transfers
- Petition for Instructions
- Powers of Appointment
- Real Estate Disputes
- Spendthrift Clause
- Statute of Limitations
- Practice Area
- Probate News
- Who We Help
A trust lawyer can assist trustees with their successor trustee responsibilities and provide general guidance to trustees regarding their role throughout the trust administration process. Even professional trustees, whose entire careers revolve around administering trusts, generally turn to lawyers for help during administration.
Perhaps you need clarification about the meaning of ambiguous language within a trust. Perhaps you need assistance preparing an inventory or an accounting of the decedent’s assets. Perhaps you need advice about how to generate income for the trust. Perhaps you need help dealing with a difficult beneficiary. Perhaps you need help selling real estate belonging to the trust. Whatever challenges you may be encountering, a trust lawyer can help you navigate your trustee responsibilities.
What Does It Mean to Be the Successor Trustee of an Irrevocable Trust?
If you are looking to learn more about what a trustee’s role entails, it is likely that you are the successor trustee of a trust. A settlor (i.e., the creator of a trust) appoints a successor trustee when executing their trust to take over trustee responsibilities after they die or become incapacitated. When the settlor dies or becomes incapacitated, the trust will usually become irrevocable, or unable to be changed.
The successor trustee can typically begin trust administration — the process of managing trust assets for the benefit of beneficiaries — almost immediately following a decedent’s death, even if the validity of a trust is being challenged with a trust contest by a beneficiary or an heir.
What Is a Trustee’s Fiduciary Duty?
A trustee is a type of fiduciary. Fiduciaries are charged with acting on behalf of another person or persons, and it is their duty to serve only that person or persons’ best interests. In the case of trustees, the persons whose interests they must protect are the beneficiaries of the trust.
Before starting administration, it is essential for trustees to understand what it means to owe fiduciary duties and what their fiduciary duties entail.
Sometimes, there will be conflicts of interest that can make it difficult for a trustee to uphold their fiduciary duties. For instance, a parent settlor may name a child as both the successor trustee and a beneficiary of their trust. This may not pose a problem if the child is the only beneficiary of the trust, but if there are other beneficiaries, the opportunity for conflict arises. Will the child be able to maintain their trustee fiduciary duty of impartiality and treat all beneficiaries equally if their own interests are at stake? This is again why it is so important for trustees to consult with a trust lawyer, who can provide them with guidance about how best to uphold their fiduciary duties and make decisions that are ethical and well-advised.
Which Specific Fiduciary Duties Do Trustees Owe Trust Beneficiaries?
Trustees owe a long list of fiduciary duties to beneficiaries. Breaching even one trustee fiduciary duty could result in the trustee being suspended or removed and surcharged. It is crucial for trustees to familiarize themselves with the following list of trustee fiduciary duties, and if the meaning of any of these duties is unclear, they should obtain clarification from a qualified trust and estate lawyer.
- Duty to execute the terms of the trust. This duty calls for the trustee to precisely adhere to the language of the trust and not stray from it in any way.
- Duty of loyalty. This duty calls for the trustee to administer the trust solely in the interest of the trust’s beneficiaries.
- Duty of impartiality. This duty calls for the trustee to treat every trust beneficiary fairly; they cannot favor one beneficiary over another. This duty is especially relevant in scenarios where the successor trustee is also a beneficiary.
- Duty to account to beneficiaries. This duty calls for trustees to provide periodic trust accountings to beneficiaries and keep them apprised of what is happening during administration.
- Duty to avoid conflicts of interest. This duty calls for trustees to avoid situations in which the trustee has direct or indirect interests that conflict with the interests of the trust’s beneficiaries.
- Duty to not commingle assets. This duty calls for trustees to keep their personal assets separate from those of the trust. Trustees should open a bank account in the name of the trust to ensure trust assets stay separate.
- Duty to enforce claims on behalf of the trust or defend claims brought against the trust. While the trustee is generally not obligated to participate in trust disputes among beneficiaries, they may be obligated to bring legal action if the trust has a claim against a person or entity. Likewise, they are obligated to defend claims that are brought against the trust. This is because both types of claims could have financial implications for the trust, and by extension, for the beneficiaries.
What Happens When There is a Breach of Trustee Fiduciary Duty?
When a trustee breaches their fiduciary duties, beneficiaries are entitled to bring a petition to have the trustee suspended or removed. If the trustee’s actions caused financial harm to the trust, beneficiaries can also bring a petition to have the trustee surcharged.
If trustee fiduciary duty breach is successfully proven, the trustee could be held personally liable not only for paying damages but also for covering their own attorney’s fees and costs. This is why it again must be emphasized that it is in a trustee’s best interest to have a probate lawyer on their team who can counsel them about the decisions they are making on behalf of the trust. The legal services provided can generally be paid for using trust funds. The fees will not have to come out of the trustee’s own pockets.
What Happens When a Beneficiary Brings a Wrongful Claim for Breach of Trustee Fiduciary Duty?
Beneficiaries should be cautious when bringing a claim against a trustee for breach of fiduciary duty, because if the claim is proven to be unfounded, the court could order for the trustee’s attorney’s fees and costs to be paid from the shares of the trust of the beneficiaries who brought the wrongful claim. If the beneficiaries’ shares of the trust don’t cover the entirety of the trustee’s legal bills for the matter at hand, the beneficiaries could be held personally liable for paying the remainder of the trustee’s expenses. These fee awards are based on the court’s inherent equitable powers to respond to bad faith litigation.
In the case Pizarro v. Reynoso, the trustee — the granddaughter of the deceased settlor — sold real property belonging to the trust to her mother, the settlor’s daughter. This is an action she was entitled to take in her capacity as trustee; nevertheless, the son and grandson of the settlor brought petitions to set aside the sale. The court considered this bad faith litigation since the trustee had not breached her fiduciary duties; it ordered the petitioners — the settlor’s son and grandson — to pay the trustee’s attorney’s fees and costs from their shares of the trust. The trustee’s mother also had to contribute to the trustee’s legal expenses with her share of the trust on account of her having provided false testimony during a hearing.
The following list covers the specific powers a trustee can have when administering a trust. If a power is not listed in the trust or in the probate code, it is always best for trustees to err on the side of caution and assume they do not have it, or they may wish to consult with a qualified lawyer for further clarification. The powers of a trustee can vary based on the terms of a trust, so the trust document should be the first place trustees look to learn what their powers are. The following list contains powers trustees generally have.
- Using trust assets to purchase additional property for the trust
- Selling property held by the trust (unless the trust explicitly forbids the sale of certain property)
- Litigating disputes on behalf of the trust
- Using trust funds to pay for the services of third-party professionals (e.g., lawyers, real estate brokers, CPAs) who are helping with trust administration duties (remember that while trustees can get help from third-party professionals, they are not entitled to give away their trustee role)
- Important note: There are limitations to the attorney-client privilege when applied to a trustee and the counsel they have hired to help with their administrative duties. In other words, attorney-client privilege is not between a trustee and their counsel, but rather between the trust and its counsel. This means that if a trustee is removed, the successor trustee can generally ask for copies of all privileged communications between the trust’s counsel and the former trustee, even if the terms of the trust state otherwise.
- Making distributions to beneficiaries in accordance with the terms of the trust
- Making investments on behalf of the trust using trust assets
- Receiving a “reasonable” compensation for the effort and time they applied toward managing the trust
- Important note: There is a potential for disputes regarding whether the compensation requested by the trustee is “reasonable.” The court will look at such factors as the value of the trust, the quality of the trustee’s work, the trustee’s experience, the cost and nature of the services provided by third parties and more to determine whether the trustee’s compensation is “reasonable.”
- Refusing their appointment as trustee or resigning from their trustee role after accepting it
Because trustees have so much power, it is easy for them to abuse it, perhaps without even realizing they are doing so. This is why it is important for trustees to keep beneficiaries informed during administration so they can be held accountable and ensure they are not overstepping their boundaries.
What Is a Trustee Not Entitled to Do?
To ensure that trustees remain within the bounds of their powers, there are certain actions trustees are absolutely not permitted to take. The following list contains the don’ts of being a trustee.
- The trustee cannot commingle their personal assets with those of the trust (e.g., if the trustee sells trust property, they cannot deposit the proceeds from the sale of the property into their personal bank account, even if they are only doing so as a temporary measure).
- The trustee cannot favor one beneficiary over another (e.g., they cannot provide one beneficiary with a loan from the trust and then proceed to deny another similarly situated beneficiary’s request for a loan).
- The trustee cannot use trust assets for personal gain (e.g., the trustee cannot reside in a vacant real property belonging to the trust without paying rent, even if the property has yet to be distributed).
If trustees engage in any of the aforementioned acts, and trust beneficiaries learn about it, it is likely that they will bring a petition to have the trustee removed and surcharged. Remember that if the claim is successfully proven, the trustee could be held personally liable for paying both damages and their own attorney’s fees and costs.
The best way to ensure that you diligently complete all the required administration tasks as the trustee is to stay organized by maintaining a filing system and keeping written records of every action you take. This way, if a claim is ever brought against you, you will have proof to back up your actions.
Trustee Responsibilities and Obligations at the Start of Administration
There are certain steps the successor trustee should take as soon as possible after the death of the settlor. Delaying could cause problems for the trustee down the road. Again, if help is needed in completing any of these steps, a probate lawyer can be consulted.
- Track down the trust instrument and carefully read its terms to determine the operative provisions, including and especially who the beneficiaries of the trust are. Also check the trust document for instructions regarding funeral arrangements; it’s possible that the decedent provided for their funeral costs to be paid from trust funds.
- Notify trust beneficiaries and heirs of the decedent of your appointment as successor trustee. If the trust has become irrevocable upon the death of the settlor, the successor trustee is required to send a formal notification containing specific information to all of the trust’s beneficiaries and the decedent’s heirs.
- Secure a copy of the decedent’s death certificate. Trust assets are valued based on how much they were worth at the time of the settlor’s death, so it is important to know the exact date of death.
- Before going any further, it is a good idea to consult with a lawyer, who can review the terms of the trust with you, as well as the specific powers you have as the trustee. If the language of the trust is ambiguous in any way, the lawyer can assist with filing a Petition for Instructions with the court. You should never interpret ambiguous language in a trust yourself; doing so could be considered a trustee fiduciary duty breach by the affected beneficiaries.
Once you’ve completed these initial steps, you are ready to move on to the more complex aspects of administration, such as creating an inventory of trust assets, managing and selling trust property, and making investments using trust funds.
Financial Responsibilities of Trustees During Administration
By this step, you should have a clear understanding of the trust’s terms and your trustee responsibilities and obligations. Also worth noting is that some trusts will call for trust assets to be distributed outright to beneficiaries, whereas others will call for distributions to be made over a specific period of time. It is important to know which category the trust you are managing falls under. Likewise, some trusts may call for certain conditions to be met before a beneficiary can be provided their inheritance. If the decedent had a surviving spouse who was dependent on them, and the trust does not provide for distributions to be made outright, the trustee may be entitled to provide the surviving spouse with an allowance while administration takes place.
The following list covers a trustee’s responsibilities during administration.
- Marshal trust assets and preserve them for eventual distribution to trust beneficiaries. For example, if a real property is being held by the trust, the trustee should ensure that the mortgage, insurance and any other expenses on it are paid, and that the property is maintained.
- Create an inventory of trust assets and their value at the time of the decedent’s death. You may need to hire an appraiser to help with this process. Once an inventory is created with trust assets and their value, provide the inventory to all the beneficiaries of the trust and the settlor’s heirs.
- Obtain titles for any assets in the trusts requiring titles. If assets are listed in the trust but were never transferred into it, something called an 850 Petition may need to be filed for the trust to obtain the title to the asset.
- Determine whether the trust has any debts that need to be paid. If there are valid creditor claims that have been appropriately submitted to the trustee, these debts will need to be paid before any distributions can be made to trust beneficiaries.
- Keep the trust beneficiaries in the loop regarding the status of trust administration. Even though the terms of the trust may not require the trustee to obtain permission from beneficiaries before selling trust property, it is a good idea to discuss with them if there are any assets they would prefer you not to sell. It is always better to provide beneficiaries with too much information, rather than too little information.
- Invest trust property and keep trust property productive. While the trustee has a duty to keep trust property productive (i.e., earning money), it is important to note that investments should not be overly risky or speculative. If you are not financially savvy, a financial adviser, CPA or skilled trust lawyer should be consulted at this step.
- Pay taxes on any income generated by the trust.
- Prepare formal accountings once a year to provide beneficiaries if doing so is required by the trust. These accountings should include such information as the assets that entered and left the trust, trust income and losses, trustee compensation, third-party compensation, and any other expenses accrued by the trust. Beneficiaries are generally entitled to request accountings at any time, and you will have to comply with their requests if they do. Either probate lawyers and CPAs can be utilized for preparing both formal and informal accountings. If a beneficiary or heir challenges an accounting, a probate lawyer can also help defend the accountings in court.
Closing Out Administration and Making Final Distributions
Once all the aforementioned duties have been completed, trustees should notify beneficiaries that administration has ended and that they will be receiving their final distributions soon. Before trust fund distributions can be made, however, it is crucial that trustees ascertain that all administration expenses have been paid.
It is part of a trustee’s responsibilities to make trust distributions to beneficiaries in a timely fashion unless the trust gives the trustees discretion to delay distributions. Trustees are also bound by the trust instrument and cannot change the amount of a beneficiary’s distribution. One reason why a beneficiary may receive a smaller inheritance than what the terms of the trust provided for them is because the trust’s creditors had to be paid first, which resulted in a reduction in the trust assets available for distribution to the beneficiaries.