A trustee is the individual or entity appointed to manage a trust. In a probate context, the term typically refers to a successor trustee, the individual or entity designated to take over management of the trust once the trust creator (called the settlor, grantor or trustor) becomes incapacitated or dies.
The settlor may name themselves as the sole trustee and beneficiary during their lifetime. At the same time, they may appoint a successor trustee to step into the role upon their death or incapacity. The main purpose of the trustee is to manage and distribute trust assets to trust beneficiaries as outlined in the trust instrument.
A trustee’s job is no walk in the park. The role comes with a long list of responsibilities, and each one presents an opportunity for mistakes. When errors do occur, trustees may face serious consequences — both financial and legal.
A probate attorney can be an invaluable resource for both trust beneficiaries and successor trustees during the often-complex process of trust administration. For beneficiaries, legal guidance helps ensure the trustee is fulfilling their obligations and being held accountable. For trustees, legal guidance helps ensure they perform their duties correctly and avoid costly missteps. Even professional trustees — those who oversee trusts for a living — frequently rely on probate attorneys for help navigating challenges and protecting themselves against potential liability.
Is a Trustee a Fiduciary?
Yes, a trustee is considered one type of fiduciary. A fiduciary is legally obligated to act in the best interests of another person or group — who, in this instance, would primarily be the beneficiaries of the trust.
Suppose a settlor appoints his daughter to serve as the successor trustee of his trust and names all his children as beneficiaries. After the settlor dies, the daughter proceeds to use her position to secretly siphon money from the trust account for personal use to the detriment of her siblings. Can a trustee withdraw money from a trust at will?
The answer to this question is no. While a trustee does often need to withdraw money from a trust to pay trust-related expenses (e.g., administration costs, the fees of third-party professionals), the trustee’s siphoning of money in this example is regarded as a misappropriation of trust funds — which is a direct violation of the trustee’s fiduciary duties.
In this example, not only did the trustee allow her conflict of interest to interfere with her ability to fairly administer the trust, but she placed her personal interests above those of the other beneficiaries.
What Are a Trustee's Fiduciary Duties?
Trustees owe a long list of fiduciary duties to beneficiaries. Breaching even one of these duties — especially if the violation results in damage to the trust — can result in serious consequences for the trustee, including suspension or removal and possibly even a surcharge. For a detailed breakdown of a trustee’s fiduciary duties, refer to Probate Code sections 16000 – 16015.
It’s crucial trustees familiarize themselves with the fiduciary duties they owe beneficiaries. If they are unsure what any of these duties entail, obtaining clarification from a qualified attorney is essential.
A trustee’s fiduciary duties to beneficiaries include:
- Duty to execute the terms of the trust. The trustee must precisely adhere to the language of the trust and not stray from it in any way.
- Duty of loyalty. The trustee must administer the trust solely in the interest of the trust’s beneficiaries.
- Duty of impartiality. The trustee must treat every trust beneficiary fairly; they cannot favor one beneficiary over another. This duty is especially relevant in scenarios where the trustee is also a beneficiary.
- Duty to account to beneficiaries. The trustee must provide periodic trust accountings to beneficiaries and keep them apprised of what is happening during administration.
- Duty to avoid conflicts of interest. The trustee must avoid situations in which their direct or indirect interests conflict with those of the trust beneficiaries.
- Duty to not commingle assets. The trustee must keep outside assets separate from those of the trust. They should open a bank account in the name of the trust to ensure trust assets stay separate.
- Duty of prudence. The trustee must manage trust assets with the same level of diligence and judgment that a reasonable person would apply to their own finances. This responsibility involves making sound investment choices, preserving and protecting trust property and consulting professionals when appropriate.
- Duty to enforce or defend trust-related claims. The trustee may be obligated to take legal action if a trust has a claim against a person or entity. Likewise, they are generally obligated to defend a trust when a person or entity sues it. It should be noted, however, that the trustee’s participation may not be needed in certain trust disputes among beneficiaries — namely ones that don’t threaten trust assets but only involve who will inherit them, as they may be required to remain impartial.
What if the Trustee Violates Their Fiduciary Duties?
If a trustee violates even one of their fiduciary duties, beneficiaries generally are entitled to sue the trustee for their breach.
Say the trustee’s alleged breach entailed a failure to account to beneficiaries. In response, the beneficiaries could file a petition to compel an accounting from the trustee.
Say the trustee’s alleged breach entailed a failure to make timely distributions of trust assets to beneficiaries. In response, the beneficiaries could file a petition to compel due and payable distributions.
Say the trustee’s alleged breach entailed improper management of the trust, which led to major financial losses. In response, the beneficiaries could file a petition seeking the trustee’s removal and a surcharge.
In short, the trustee’s specific misdeeds will determine what remedies beneficiaries should request in their petitions, as well as how severe the remedies should be. A probate attorney can assist not only with determining the best way to hold the trustee accountable but with the actual process of drafting and filing the petition as well.
A trustee can generally use trust funds to defend themselves when they’re sued; however, if they’re found liable for harming the trust, they could be ordered to reimburse the trust the cost of their legal fees.
Beneficiaries, on the other hand, generally must pay their own legal fees when suing the trustee; however, they typically can join forces with one another to offset their legal costs and can potentially recoup their fees from the trust or the trustee directly if their case goes to trial and they win. That said, most cases settle instead of being resolved at trial.
What if a Beneficiary Makes a Wrongful Claim Against a Trustee?
Beneficiaries, be warned! If you bring a claim against a trustee for a breach of fiduciary duty, and your claim is proven to be unfounded, the court could order that the trustee’s legal fees be paid from your personal share of the trust.
If your share doesn’t cover the entirety of the trustee’s legal costs for the matter, you 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 described in California Probate Code section 17211.
Take, for example, the California Court of Appeal case Pizarro v. Reynoso. In it, the trustee, the decedent’s granddaughter, sold real property belonging to the trust to her mother, the decedent’s daughter. This is an action she was entitled to take in her capacity as trustee; nevertheless, the decedent’s son and grandson brought petitions to set aside the sale.
The court regarded the son’s and grandson’s petitions as bad faith litigation, since the trustee had not breached her fiduciary duties, and ordered them to pay the trustee’s legal costs from their shares of the trust. The trustee’s mother also was required to contribute to the trustee’s legal costs with her share of the trust on account of the false testimony she was found to have provided during a hearing.
What Does a Trustee Do?
Although the role of a trustee is multifaceted, consisting of a wide range of responsibilities and obligations, its primary purpose is to carry out the provisions of the trust instrument. This, however, is an extremely simple summary for what can be a highly complex job. We’ll delve into more details in the sections below.
If you are a trustee, staying organized is key to fulfilling your administrative duties accurately and on time. One of the best ways to do this is by maintaining a reliable filing system to document every action you take on behalf of the trust. Keeping a thorough paper trail can help protect you if allegations of fiduciary misconduct ever arise.
If you’re a beneficiary, don’t assume a passive role while the trust is administered. The best way to safeguard your inheritance is by remaining actively involved: Communicate regularly with the trustee, request updates and documentation as appropriate, carefully review financial statements and stay informed about the progress of the administration. This way, if something seems off, you’ll be positioned to take swift and effective action to protect your interests.
What Are the Responsibilities of a Trustee During Administration?
Although trustees aren’t required to file for probate like executors and administrators, they are still bound by a distinct set of responsibilities and obligations that must be carried out in accordance with legal guidelines.
Unlike estate assets, which are typically distributed after the probate process concludes, trust assets can often begin to be distributed once the initial administrative steps have been completed. However, it’s ultimately the provisions of the trust that dictate how and when distributions of trust assets to beneficiaries must be made.
Initial Responsibilities of the Trustee
There are certain steps the successor trustee must take as soon as possible after the settlor’s death. Delaying taking these steps could cause problems for the trustee down the road.
Initial steps the trustee must take include:
- Track down the trust instrument. Trustees must carefully review the terms of the trust as its provisions determine, among other things, the rights and responsibilities of the trustee and who the beneficiaries are. The trust instrument may also list instructions for funeral arrangements or a term providing for funeral costs to be paid from trust funds.
- Notify beneficiaries and heirs. If the trust has become irrevocable upon the settlor’s incapacity or death (as most do), the successor trustee is required to serve a notification by the trustee to all beneficiaries and heirs. Many trustees opt to include a copy of the trust with their notice to beneficiaries; however, if they don’t, they must be prepared to provide beneficiaries with a copy upon request. The full requirements for formal notices can be found in Probate Code section 16061.7.
- Secure certified copies of the decedent’s death certificate. Trust assets are valued based on their worth at the time of the settlor’s death, so it is important to know the exact date and time of death. Additionally, the trustee may require the settlor’s death certificate to access certain types of assets, such as bank and retirement accounts.
- Consult a probate attorney. While the trustee is not required to consult an attorney, doing so is a good idea. In fact, it is advisable they have an attorney in their corner throughout administration in the event any issues arise. An attorney can assist with everything from interpreting the trust instrument to delivering notices. In addition, if a trust contains ambiguities or is otherwise faulty, an attorney can recommend the proper course of action — whether that be filing a petition for instructions or contesting the trust — to help resolve the issue and keep administration on track.
Financial and Legal Responsibilities of the Trustee
By this stage, the trustee and beneficiaries should have a clear understanding of the trust’s terms, but it’s still not time for distributions. Distributions cannot be made until all of a trust’s assets have been accounted for and all necessary debts have been paid.
The financial and legal steps a trustee must take include:
- Marshal trust assets and take steps to preserve them. The trustee must gather all ascertainable trust assets and protect them until they can be distributed to beneficiaries. For example, if a real property is being held by the trust, the trustee should ensure its mortgage and insurance are timely paid and that the property is well-maintained.
- Create an inventory. The trustee must list all the trust’s assets and their value at the time of the settlor’s death in an inventory, which they must provide beneficiaries and heirs. An appraiser may need to be hired to help with this step.
- Obtain titles for any assets in the trust requiring titles. For an asset to be considered trust property, it’s generally required that the settlor transfer its title into the trust’s name. If assets are listed in the trust that were never transferred, something called an 850 petition may need to be filed for the trust to obtain title to the asset. Assets such as real properties and vehicles may have titles attached to them.
- Pay debts if applicable. If valid creditor claims have been timely submitted to the trustee, the trustee generally must pay these debts before making any distributions to the beneficiaries. That said, creditor claims usually are paid by the decedent’s estate instead of their trust. Only when an estate lacks the funds to pay — or the debts belong to the trust itself — might a trustee be responsible for satisfying creditor claims.
- Keep beneficiaries reasonably informed. The trustee must provide beneficiaries with the information they need to effectively enforce their rights. For example, even though a trust may entitle a trustee to sell trust property without consent from the beneficiaries, it may be a good idea for the trustee to discuss potential sales with beneficiaries anyway to prevent misunderstandings and conflicts. It is generally preferable for trustees to err on the side of caution and provide beneficiaries with too much information, as opposed to too little information.
- Keep trust assets productive. The trustee is generally responsible for generating income for the trust through prudent investments. If a trustee isn’t financially savvy, they may wish to consult a financial adviser, CPA or probate attorney for help with this step.
- Pay taxes. The trustee is responsible for not only paying any outstanding taxes the trust owes, but also for paying taxes on income the trust generates. Outstanding taxes usually must be paid before any distributions can be made.
- Account to beneficiaries. The trustee must prepare and provide a formal accounting to beneficiaries at least once a year for every year the trust remains open. These accountings should include information about assets that entered and exited the trust, the trust’s income and losses, trustee fees, third-party compensation and any other expenses accrued by the trust. Keep in mind that beneficiaries can request informal accountings at any time.
Closing Responsibilities of the Trustee
Unlike estate distributions — which are typically provided to estate beneficiaries as a lump sum at the conclusion of probate — trust distributions can take various forms. For example, distributions may be made as a lump sum after trust administration is complete, or they may be staggered over time. It all depends on the instructions outlined in the trust instrument.
It’s essential for trustees to understand that their role is to carry out the terms of the trust exactly as written. They do not have the authority to change beneficiaries or alter the amount of a beneficiary’s inheritance. The only exception is if the trust grants the trustee discretionary powers — though even then, those powers must be exercised in accordance with their fiduciary duties.
Notably, trustees — unlike executors and administrators — may be entitled to temporarily withhold a beneficiary’s inheritance if there is a legitimate concern the funds could be wasted or used for harmful purposes. However, such withholding must be reasonable and cannot be indefinite.
It’s important to remember that a trust doesn’t terminate until it’s been fully distributed, which, by extension, means a trustee’s responsibilities don’t cease until that point, either.
FAQs: A Trustee’s Responsibilities and Role
If you still have questions about the responsibilities or role of a trustee, check out the frequently asked questions below to gain further clarity. Alternatively, you can always reach out to our firm for personalized guidance. Our attorneys practice trust and estate administration and litigation exclusively and are eager to assist with your legal matter.
What is the difference between a trustee and executor?
A trustee is responsible for managing a trust, while executors and administrators are responsible for managing an estate. Executors are typically named in a will, whereas administrators are appointed by the court when someone dies without a will (i.e., they die intestate).
Unlike executors and administrators, who must be formally appointed by the court — usually at the initial probate hearing — trustees generally step into their role without needing court approval, as long as the trust document names them as successor trustee.
Estate administration by an executor or administrator takes place under court supervision, which is what we refer to as the probate process. Because probate can be time-consuming, costly and public, many people choose to create trusts as their primary estate planning tool.
Trustees, while not usually subject to court oversight, are still held to the same high fiduciary standards as executors and administrators.
What is the difference between a power of attorney and trustee?
While agents under a power of attorney and trustees may share similar responsibilities, their roles serve distinct purposes. A power of attorney is meant to assist the principal — the person granting the authority — during their lifetime, particularly if they become incapacitated. In contrast, a successor trustee generally assumes their duties only after the settlor has died or become incapacitated.
Powers of attorney are often used to help manage the principal’s personal and financial affairs while they’re alive. Trustees, on the other hand, are primarily responsible for carrying out the terms of the trust, which often involves distributing trust assets to beneficiaries after the settlor’s death.
It’s also important to understand that all forms of power of attorney become invalid upon the principal’s death. A trust, however, typically becomes irrevocable upon the settlor’s death, meaning it can no longer be changed, but it remains legally effective and must be administered according to its terms.
Who is typically the trustee of the trust?
The trustee of a trust is whoever the settlor appointed to the role in the trust instrument. Of course, the appointee is generally permitted to decline their appointment or resign from their role, in which case an alternate trustee who was named in the trust may serve in their place.
To serve as trustee, a person must be 18 years of age and mentally competent. Many settlors name their family members to serve, while others name private professional fiduciaries.
Can a trustee represent a trust in court?
Yes, a trustee can not only represent a trust in court, but they may be responsible for doing so if a claim needs to be made on behalf of the trust or the trust needs to be defended against litigation by another party.
What are the responsibilities of a trustee of an irrevocable trust?
The responsibilities of a trustee of an irrevocable trust are, in general, no different from the responsibilities of a trustee of a revocable trust, since most trusts — even revocable ones — become irrevocable by default upon the incapacity or death of the settlor. This means their duties are identical to the ones discussed in this article, which, among others, include:
- Notifying beneficiaries and heirs about the administration
- Creating an inventory of trust assets
- Protecting and preserving trust property
- Generating income for the trust
- Accounting to beneficiaries
- Making timely distributions according to the terms of the trust
An irrevocable trust is a trust that generally cannot be changed or revoked without a court order or the unanimous consent of the settlor(s), trustee(s) and all beneficiaries.
Still have questions about a trustee’s duties?
Keystone’s probate attorneys work exclusively in the administration and litigation of trusts and estates, so they are well-versed in what a successor trustee’s duties entail. To ensure a trustee’s responsibilities and obligations are being fulfilled in accordance with state laws, it is recommended you seek the help of one of our skilled probate attorneys right away. Call us today to discover how we can help.
