How to Diligently Fulfill Your Duties as the Trustee of a Trust
A trustee’s job is complicated. There is a lot to consider, a lot to do and a lot of potential for mistakes. Whether you are the trustee of a trust with a living grantor, or you are a successor trustee taking over for a deceased grantor, our trustee attorneys can serve as your No. 1 resource.
- What if the terms of a trust are unclear? As the trustee of the trust, what steps should you take to obtain clarification about what they mean?
- What if the deceased grantor provided for a large share of their trust to go to a stranger?
- As the successor trustee, is it your responsibility to litigate if you believe the grantor to have been a victim of financial abuse?
- What if certain assets listed on the trust document are nowhere to be found?
- As the trustee of the trust, is it your duty to track them down and/or file claims against the individuals you suspect to have stolen them?
Keystone’s trustee services provide effective solutions to all of the aforementioned dilemmas and more. Our trustee lawyers regularly work alongside trustees to assist them with all aspects of the administration process, including any litigation or disputes that arise.
What is a Trustee?
You’ve been named the trustee of a trust. You’re probably wondering: What is a trustee? What does a trustee do? How do I get started?
Your initial focus should be on understanding the definition of trustee. Without a solid grasp of what a trustee is, navigating the more complex aspects of being a trustee will be challenging.
Trustee Definition
Trustees are individuals or organizations who have been given authority to administer the property held within a trust for the benefit of the trust’s beneficiaries (i.e., persons who stand to inherit from the trust).
Trusts are not subject to formal probate (i.e., court supervision) since they are considered private entities. By extension, trustees also are not required to report to the courts, unless there is a trust-related dispute that makes it necessary for the court to get involved.
Keystone’s trustee lawyers are available to answer any questions you may have about the definition of trustee or about what the job of a trustee entails.
Trustor vs. Trustee
The trustor (also called the “grantor” or “settlor”) is the creator of the trust, whereas the trustee is the party the trustor names to manage the trust.
Depending on the trust’s terms, the line between the trustor of a trust and trustee of a trust can be blurred. It is often the case that the trustor and trustee are the same person. Other times, the trustor’s involvement is limited to the creation of the trust, with all other decisions and actions related to the trust being the responsibility of the appointed trustee, who is someone other than the trustor.
Trustee vs. Successor Trustee
When executing a new trust, the creator of the trust (i.e., the trustor) will either designate themselves or someone they can rely on to be the initial trustee of the trust.
So, what is a successor trustee? Most of the time, the trustor will designate a “successor trustee” along with an initial trustee. Successor trustees are first in line to take over administration in the event the appointed trustee – either the trustor themselves or the person they have named as trustee – is incapable of acting (e.g., they have lost competence due to Alzheimer’s disease), is unwilling to act or has died.
Co-Trustees
When multiple parties are designated as the trustees of a trust, they are called co-trustees. Since the powers of co-trustees can vary, it is important for co-trustees to consult with a trustee attorney before administration begins to learn what their specific powers allow them to do and not do when it comes to the trust.
Co-trustees must always remember:
- The trust may provide for each co-trustee to have different powers.
- Co-trustees are held to the same standards as sole trustees in that they are required to act in the best interests of the trust’s beneficiaries.
- If co-trustees fail to meet their obligations or cause harm to the trust’s assets in any way, just like sole trustees, they could be removed or suspended, as well as be held personally liable for paying punitive damages and the opposing party’s attorney’s fees and costs.
- Unless authorized by the trust, co-trustees must never make unilateral decisions about the trust; before they move forward with any decision, they must inform the other co-trustees and obtain their consent.
There are definite benefits to a trust having co-trustees: lighter workloads, more opinions contributing to trust-related decisions, a decreased likelihood of making mistakes.
On the flip side, when there are co-trustees, arguments can arise among them, causing delays in the trust administration process. To prevent these sorts of delays, a co-trustee should enlist the help of a trustee attorney at the first sign of a dispute.
Trustee vs. Executor
The difference between a trustee of a trust and the executor of an estate is relatively straightforward:
Whereas trustees provide services related to trusts (e.g., managing trust assets, distributing trust assets), executors provide services related to estates (e.g., managing estate assets, distributing estate assets). Trustees of trusts are nominated through a trust document, while executors are nominated through a will.
It is not unusual for a decedent to die with a comprehensive estate plan consisting of both a trust and will – and for a decedent to nominate the same person to act as both the successor trustee and executor.
There are several other factors to keep in mind when comparing the role of a trustee vs. the role of an executor:
- A trustee, who can either be the trustor or another responsible party, may be appointed while the trustor is still alive; a successor trustee is charged with administering a trust after the trustor or the appointed trustee (if they are different from the trustor) becomes incapacitated or dies.
- An executor’s job starts once the creator of a will (i.e., the testator) dies – never before.
- Depending on the terms of a trust, a successor trustee’s job can either be ongoing or cease once the trust has been administered.
- An executor’s job is never ongoing. Once the assets held by a decedent’s estate have been distributed to beneficiaries, the executor will close out the estate, effectively ending their job.
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What Should the Trustee Do if the Decedent’s Trust Conflicts With Their Will?
As part of the administration process, estate property must pass through probate. On the other hand, trust property is exempt from probate on account of trusts being private entities. That is why trusts incur their own expenses and debts.
A trustee’s job can get tricky when a certain piece of property, such as the decedent’s home, is listed on the trust instrument as an asset of the trust, but the trustor failed to transfer that property into the trust before they died. Would the property default to being held by the estate? Another possible scenario is that a certain asset is listed both on the trust document as well as on the will. Which would have a claim to it: the trust or the estate?
In the event that a decedent failed to complete the transfer of a certain piece of property into their trust before they died, Probate Code Section 850 provides an opportunity for trustees of trusts, as well as other interested parties, to file what is called an 850 Petition with the probate court calling to complete the transfer of the property into the trust. While there is no guarantee the court will approve this kind of petition, the property may avoid having to pass through probate if it does.
In the event both a trust and estate have claims to a certain piece of property, the trust or the later executed document may take precedence. This is not to say that the executor, administrator or other another interested party could not seek to have the property transferred into the estate by means of estate litigation.
When property disputes arise, it is best to consult with a trustee attorney who can help file any necessary petitions and devise a plan of action.
Duties of Trustees
Before getting started, trustees should familiarize themselves with what will be required of them as the trustee of a trust because failing to complete even one step of the administration process, or completing it incorrectly, can render them personally liable for damages if trust assets were compromised in any way. Trustees can also be suspended or removed if their actions – or inaction – warrants it.
Navigating a trust isn’t easy, which is why it’s advisable for trustees of trusts to have help. Keystone’s trustee services provide the tools for trustees to succeed in their roles.
What Does a Trustee Do?
Not all trustees of trusts will have the same responsibilities since a trustee’s role will largely depend on the parameters set by the trustor in the trust document. A trustee’s powers can be broad or limited, brief or prolonged. A trustee attorney can help interpret the trust document and clarify the duties and obligations of a trustee.
All trustees, regardless of their specific powers, will be held to their fiduciary duties – i.e., every action they take on behalf of the trust must advance the beneficiaries’ best interests. A trustee abandoning their fiduciary duties can result in their suspension or removal and a possible surcharge.
- A duty of loyalty to beneficiaries — i.e., the duty to act with absolute fidelity toward the beneficiaries of the trust and never place their own interests above those of the beneficiaries
- A duty to avoid conflicts of interest — i.e., the duty to avoid situations where the trustee has a direct or indirect interest that conflicts with the interests of the trust’s beneficiaries
- A duty to account to the beneficiaries and provide information concerning the trust administration process
- A duty of impartiality — i.e., a duty to treat all beneficiaries equally
- A duty to keep trust assets separate from other assets
- A duty to enforce or defend claims brought against the trust
How easy or difficult a trustee’s job is will be determined by the size and overall complexity of the trust. Trustees are permitted to use trust funds to hire professional help, such as a trustee attorney or CPA, if they need assistance fulfilling their obligations.
Powers of Trustees
Trustees of trusts have a significant amount of power when it comes to making decisions about the trust they manage. While this level of authority makes it possible for them to efficiently carry out their duties, it also may cause them to – intentionally or unintentionally – overstep their boundaries.
It is important for trustees of trusts to consult with a trustee attorney before making any major decisions related to a trust.
What Is a Trustee Permitted to Do?
- Purchasing property for the trust using trust assets
- Selling trust property (unless the terms of the trust forbid the sale of certain property)
- Hiring third-party professionals using trust funds to assist with administration duties
- Making distributions to beneficiaries
- Withholding distributions to certain beneficiaries if there is a valid reason for doing so
- Making investments on behalf of the trust
- Receiving compensation for the time and effort they spend managing the trust
- Refusing appointment as trustee or stepping down after being appointed
What Are Some Things That a Trustee Cannot Do?
While the duties and powers of trustees can vary depending on the terms of a trust, what trustees absolutely cannot do is the same across the board. If a trustee does any of the following things, they may be accused of breaching their duties, which could lead to suspension, removal or worse.
- Commingle trust assets with any other assets (e.g., the trustee cannot deposit the proceeds from the sale of trust property into a personal bank account)
- Use trust assets for personal gain (e.g., the trustee cannot live in a property belonging to a trust without paying rent, even if the property is still being administered)
- Favor one beneficiary over another (e.g., make distributions to one beneficiary but not another similarly situated beneficiary)
- Make risky investments using trust funds (e.g., the trustee should not use trust funds to invest in a risky stock)
Trustee lawyers are worth the investment, as they can help prevent potentially costly errors before they happen and provide trustees of trusts with the peace of mind that they are staying within the boundaries of their role.
Are Trustees Entitled to Compensation?
Regardless of whether or not the trust instrument has a provision relating to trustee compensation, trustees have a right to be paid a “reasonable” amount for the time and effort they spend managing and administering a trust.
If a trust does provide instructions for trustee compensation, the trustee will generally be paid the amount designated in the trust terms. The judge, however, could determine that the designated amount is unreasonable and set a higher or lower compensation rate.
Because it is usually left up to trustees to determine what is “reasonable” in terms of pay – and because the word “reasonable” is subjective by nature – disputes can arise if trustees provide themselves too generous a compensation.
The court will consider the below factors when deciding what a “reasonable” compensation is for a given trustee.
- The value and nature of the trust, and the responsibilities and risks involved in administering it
- How much time the trustee spent on the trust, as well as the quality and complexity of the services provided
- The cost and nature of the services provided by professional third parties
- The trustee’s experience and skills
- The quality of the results obtained by the trustee
What Information About the Trust Must Trustees Share with Beneficiaries?
Upon taking over as trustee for an incapacitated trustor, the trustee’s duties will be to the trustor until the trustor dies, at which point the successor trustee’s duties will shift to the trust’s beneficiaries.
Successor trustees are required to notify beneficiaries about the existence of the trust and about their appointment as trustee as soon as possible after the trustor dies.
After this initial step, trustees are obligated to provide beneficiaries with pertinent information concerning the administration of the trust. Perhaps the most important of this information is trust accountings.
- Unless the trust provides otherwise, it is not an option for trustees to provide accountings to beneficiaries; it is a requirement. Beneficiaries can request informal or formal accountings from trustees from time to time.
- Accountings should include information like trust expenses, trust income, trustee compensation, property held by the trust and the value of said property
- Trustees are usually required to provide the beneficiaries with a formal accounting once a year.
- Trustees failing to provide accurate accountings or whose accountings reflect mismanagement of assets can be removed and/or surcharged.
- Accountings can be challenged, so it is important to prepare them with help from a trustee attorney.
A skilled trustee lawyer can help prepare accountings and/or inspect them to make sure they are up to par.
Trustees need to remember they have a duty to keep beneficiaries informed about the administration of the trust. If they don’t, beneficiaries can petition the court to try and compel the trustee to provide the information they seek.
It is in the best interest of trustees to err on the side of caution when it comes to keeping trust beneficiaries informed. They should usually be as thorough and transparent as possible to avoid any future legal retaliation at the hands of beneficiaries.
Are Trustees Allowed to Sell Trust Property?
Trustees are generally permitted to sell trust property, unless, of course, the trust document explicitly forbids the selling of said property. Property that can be sold may include real estate, cars, stocks and any other assets belonging to the trust.
Most trusts don’t require trustees to obtain approval from the trust’s beneficiaries before selling trust property. Nevertheless, it is rarely a bad idea for trustees to communicate with beneficiaries in writing about the property they plan to sell and for what price to prevent the possibility of beneficiaries later suing the trustee for selling the property below market value – which is valid grounds for legal retaliation.
Similarly, if the property for sale is of high value, or if the trustee of the trust is personally benefiting from the sale, it is crucial for the trustee to solicit the help of a trustee attorney before making any moves. The trustee attorney can help prevent the possibility of disputes by securing consents for the sale from the trust’s beneficiaries.
The most common reasons for the trustee of a trust selling trust property include:
- To pay off the trust’s debts, taxes and other expenses
- To satisfy a condition of the trust stating that a certain piece of property (e.g., a home) should be divided among the trust’s beneficiaries, but it would be impractical or unfeasible to do without selling the property first
- To satisfy a condition of the trust that designates a certain piece of property for sale
- To bring additional income into the trust if a piece of property is selling for more than it is worth
Trustees must always remember to remain impartial when selling trust property. They should not be thinking about how they may benefit from the sale but about whether the sale is beneficial to all of the trust’s beneficiaries.
Can Trustees Refuse Their Appointment or Resign After Administration Has Started?
Trustees of trusts have the power to decline their appointment or resign after starting the administration process. Declining an appointment as trustee usually only requires written notification. Resigning from the role, however, can be more complicated and may require the help of a trustee attorney.
The first step of the resignation process entails examining the trust instrument to determine whether the trustor had named a successor trustee or established a procedure for appointing a new trustee. If the trustor did not include this information in the trust’s terms, it will likely be up to the trustee and/or the trust’s beneficiaries to appoint a successor trustee. The trustee of the trust may also have to seek approval from the court in order to resign.
Before the trustee of a trust resigns, they should prepare a final accounting to provide to both the successor trustee and the trust beneficiaries to make the transition more seamless for both parties.
What Are Some Examples of Trustee Misconduct?
When trustees breach their duties, the consequences can be dire. Regardless of whether damage is brought upon the trust as a result of trustees acting improperly or altogether failing to act, trustees could be held responsible for paying damages out of their own pockets. They may also be suspended or removed and be held liable for paying the opposing party’s attorney’s fees and costs.
Trustee misconduct can include:
- Failing to keep trust beneficiaries reasonably informed during the administration process
- Withholding distributions to beneficiaries without having proper cause to do so
- Failing to pay the trust’s taxes, creditors or other expenses
- Mismanaging or misappropriating trust property
- Failing to remain impartial; favoring certain beneficiaries’ interests over the interests of other beneficiaries
Before the trustee of a trust resigns, they should prepare a final accounting to provide to both the successor trustee and the trust beneficiaries to make the transition more seamless for both parties.
How Our Trustee Services Can Help You
A trustee’s job comes with countless responsibilities and obligations. One misstep can derail the entire administration process, so it is crucial for trustees to remain well-informed about what is required of them.
Trustee attorneys are an excellent resource for trustees of trusts wishing to sail through the administration process without complications. With the help of skilled trustee lawyers, trustees can rest assured their responsibilities and obligations will be met, and any disputes that arise will be efficiently handled.
Were You Appointed Trustee of a Trust?
Getting started as a trustee can be challenging. There are a whole host of tasks you must complete. Where do you begin? Can you get help from professionals? What if you don’t understand the terms of the trust?
A trustee attorney can not only help to answer any questions you have, but also help you to fulfill your obligations to the trust’s beneficiaries.
- Counseling trustees during the administration process
- Checking and/or preparing accountings
- Verifying whether creditor claims are valid
- Litigating on behalf of trustees
- Defending litigation brought against trustees
- Making disbursements to beneficiaries according to the terms of the trust
No matter whether you are an experienced trustee or new to the role, hiring a trustee attorney to assist you with trust matters is never a bad investment. Because trust litigation and administration are two of Keystone’s primary practice areas, its trustee attorneys are well-prepared to assist trustees with their duties and streamline the administration process for them.
What Is the Role of a Trustee in Trust Disputes?
Trustees are fiduciaries. In other words, when it comes to trust-related matters, they are required to make decisions that align with the beneficiaries’ best interests. In the context of trust disputes, this means that unless the trust beneficiaries’ interests are at stake, the trustee should refrain from participating in the dispute. If the interests of the trust beneficiaries are at stake, the trustee, in all probability, should get involved.
Instances in which the trustee should consider getting involved include, but are not limited to, the following:
- If litigation is brought against the trust (e.g., a third party is making an illegitimate claim on trust property)
- If litigation needs to be brought against a third party or beneficiary on behalf of the trust (e.g., it comes to light that a beneficiary may have committed fraud to secure an increased share of the trust)
- If litigation is brought against the trustee (e.g., if beneficiaries are suing the trustee for mismanaging assets)
Trustee attorneys can help trustees determine whether or not to involve themselves in a dispute, and if it turns out that they should get involved, trustee attorneys can help bring the case to a favorable resolution.
What Should Trustees Do if Someone Brings a Trust Contest?
Trustees are usually obligated to defend a trust if the trust is being contested for no good reason. Generally, anyone with standing – i.e., beneficiaries and heirs – can bring a trust contest.
It is crucial for trustees of trusts to consult with a trustee attorney prior to defending a contest to determine whether it is advisable for them to litigate in the first place, and if so, whether litigating would be in the best interest of the trust’s beneficiaries, since attorney’s fees and costs may have to come out of trust funds.
Trustee attorneys can assist trustees with:
- Defending a trust contest on behalf of the trust
- Determining whether or not to participate in the trust contest
Is a Beneficiary Trying to Have You Suspended or Removed as Trustee and Surcharged?
If a beneficiary suspects a trustee of misconduct or negligence in regard to the trust, they are entitled to petition the court to have the trustee suspended or removed and surcharged, especially if the trustee’s actions – or inaction – resulted in damage to the trust.
If it is proven in court that the trustee of the trust did indeed engage in misconduct, the judge may approve the petition to have the trustee suspended or removed and surcharged. The trustee may also be held liable for covering the beneficiaries’ attorney’s fees and costs.
With an experienced trustee lawyer on their side, trustees will not have to worry about making mistakes. Or, even if they make mistakes, the trustee lawyer can help ensure they suffer as little damage as possible as a result.
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Request a Free Consultation to Learn More About Our Trustee Services!
Make your job as trustee of a trust easier by enlisting the help of one of Keystone’s experienced trustee attorneys. Our firm’s trustee services cover a wide range of matters. Call our trustee lawyers today to request a free consultation and learn more.
