A trustee is a fiduciary responsible for managing and administering a trust according to its terms and applicable law. Trustee duties, including the essential trustee duties outlined below, require that trustees act in the best interests of the beneficiaries and fulfill various legal and ethical obligations. Below is a detailed explanation of a trustee’s duties and responsibilities from appointment to conclusion, highlighting key trustee duties.
Initial Responsibilities Upon Appointment
Accepting the Role
A trustee must formally accept their appointment, which may involve signing an acknowledgment or acceptance document, depending on the jurisdiction and trust instrument.
Understanding the Trust Terms
The trustee should thoroughly review the trust document to understand:
- The trust’s purpose and terms
- The identities and rights of beneficiaries
- The specific powers and limitations granted to the trustee
- The duration and termination provisions of the trust
Notification of Beneficiaries
The trustee is required to notify all beneficiaries of the trust’s existence and provide them with a copy of the trust document. In many jurisdictions, this must be done within a specific timeframe. For example, under California Probate Code Section 16061.7, a trustee must notify all beneficiaries and heirs within 60 days of assuming the role. The notice must include:
- The trustee’s name and contact information
- The date the trust became irrevocable
- A statement informing beneficiaries of their right to request a copy of the trust document
Failure to comply with these notification requirements can lead to legal consequences, including potential challenges from beneficiaries.
Gathering and Securing Trust Assets
The trustee must take control of all trust assets, which may include:
- Real estate
- Bank accounts
- Investments and securities
- Business interests
- Personal property
The trustee should ensure proper titling of assets in the name of the trust and take inventory of all holdings.
Obtaining Legal and Financial Guidance
If necessary, the trustee should consult with attorneys, accountants, and financial advisors to understand fiduciary duties, tax obligations, and compliance requirements.
Fiduciary Duties of the Trustee
Fiduciary Relationship
A fiduciary relationship is “`any relation existing between parties to a transaction wherein one of the parties is in duty bound to act with the utmost good faith for the benefit of the other party. Such a relation ordinarily arises where a confidence is reposed by one person in the integrity of another, and in such a relation the party in whom the confidence is reposed, if he voluntarily accepts or assumes to accept the confidence, can take no advantage from his acts relating to the interest of the other party without the latter’s knowledge or consent. . . .'” (Wolf v. Superior Court, 107 Cal.App.4th 25, 29 (Cal. Ct. App. 2003))
Fiduciary Duties
Understanding trustee duties is crucial for any trustee, as these duties encompass a wide range of responsibilities essential to trust administration. Fiduciary duties of the trustee include the following:
1. Duty of Loyalty – (Probate Code §16002)
A trustee must act solely in the best interests of the beneficiaries.
2. Duty of Impartiality – (Probate Code §16003)
If a trust has two or more beneficiaries, the trustee has a duty to deal impartially with them and shall act impartially in investing and managing the trust property, taking into account any differing interests of the beneficiaries.
3. Duty to Avoid Conflicts of Interest and Avoid Self-Dealing – (Probate Code 16004)
The trustee has a duty not to use or deal with trust property for the trustee’s own profit or for any other purpose unconnected with the trust, nor to take part in any transaction in which the trustee has an interest adverse to the beneficiary.
4. Duty Not to Become a Trustee of Another Trust – (Probate Code §16005)
The trustee of one trust has a duty not to knowingly become a trustee of another trust adverse in its nature to the interest of the beneficiary of the first trust.
5. Duty to Preserve Trust Property – (Probate Code §16006)
The trustee has a duty to take reasonable steps under the circumstances to take and keep control of and to preserve the trust property.
6. Duty to Make Trust Property Productive – (Probate Code §16007)
The trustee has a duty to make the trust property productive under the circumstances and in furtherance of the purposes of the trust.
7. Duty Not to Commingle – (Probate Code §16009)
The trustee has a duty to keep the trust property separate from other property not subject to the trust.
8. Duty to Enforce Claims – (Probate Code §16010)
The trustee has a duty to take reasonable steps to enforce claims that are part of the trust property.
9. Duty to Defend Actions – (Probate Code §16011)
The trustee has a duty to take reasonable steps to defend actions that may result in a loss to the trust.
10. Duty Not to Delegate – (Probate Code §16012)
The trustee has a duty not to delegate to others the performance of acts that the trustee can reasonably be required personally to perform and may not transfer the office of trustee to another person nor delegate the entire administration of the trust to a co-trustee or other person.
11. Duty of Co-Trustee – (Probate Code §16013)
If there is more than one trustee, each trustee has a duty to participate in the administration of the trust and take reasonable steps to prevent a co-trustee from committing a breach of trust or to compel a co-trustee to redress a breach of trust.
12. Duty to Apply Full Extent of Skills (Probate Code §16014)
The trustee has a duty to apply the full extent of the trustee’s skills especially those skills represented by the trustee to the settlor.
13. Duty of Care – (Probate Code §16040)
The trustee shall administer the trust with reasonable care, skill, and caution under the circumstances then prevailing that a prudent person acting in a like capacity would use.
14. Duty to Manage and Invest (Prudent Investor Rule) – (Probate Code §16047)
A trustee shall invest and manage trust assets as a prudent investor would, by considering the purposes, terms, distribution requirements, and other circumstances of the trust.
15. Duty to Diversify – (Probate Code §16048)
The trustee has a duty to diversify the investments of the trust unless, under the circumstances, it is prudent not to do so.
16. Duty to Keep Beneficiaries Informed – (Probate Code §16060)
The trustee has a duty to keep the beneficiaries of the trust reasonably informed of the trust and its administration.
17. Duty to Report Information – (Probate Code §16061)
On reasonable request by a beneficiary, the trustee shall report to the beneficiary by providing requested information to the beneficiary relating to the administration of the trust relevant to the beneficiary’s interest.
18. Duty to Account – (Probate Code §16062)
The trustee shall account at least annually, at the termination of the trust, and upon a change of trustee, to each beneficiary to whom income or principal is required or authorized in the trustee’s discretion to be currently distributed.
19. Duty to Provide True and Complete Copy of Trust – (Probate Code §16061.5)
A trustee shall provide a true and complete copy of the terms of the irrevocable trust when (1) a beneficiary of the trust or an heir of the deceased settlor requests it upon the death of the settlor; (2) upon change of trustee of irrevocable trust; (3) if the trust is a charitable trust.
20. Duty to Provide Notification By Trustee – (Probate Code §16061.7)
Within 60 days, the trustee shall serve a notification by trustee (1) when a revocable trust or any portion thereof becomes irrevocable because of the death of one or more of the settlors, (2) whenever there is a change of trustee of an irrevocable trust, (3) whenever a power of appointment retained by a settlor is effective or lapses upon death of the settlor.
21. Duty to Follow Terms of Trust – (Probate Code §16000)
On acceptance of the trust, the trustee has a duty to administer the trust according to the trust instrument. Ex.: The trustee must distribute the trust assets as directed by the terms of the trust.
22. Duty to File Taxes (IRS Code and California Tax Code)
Trustees are responsible for: (1) Obtaining a Tax Identification Number (TIN) for the trust (if required); (2) Filing trust income tax returns (IRS Form 1041 in the U.S.); (3) Paying any applicable taxes.
Trustee duties also include monitoring investments and ensuring that all trustee duties comply with the terms of the trust.
Ongoing Administration Duties
Managing Distributions
The trustee must:
- Adhere to discretionary or mandatory distribution provisions
- Ensure compliance with any conditions outlined in the trust document
Handling Claims and Debts
If the trust has outstanding debts or claims, the trustee must:
- Notify creditors if required by law
- Settle valid claims using trust funds
- Defend against improper claims
Updating Records
Trustees must maintain meticulous records of:
- Income and expenses
- Investments and changes in asset values
- Distributions and communications with beneficiaries
Concluding Trustee Responsibilities
Final Accounting
Before terminating the trust, the trustee should:
Trustee duties extend to ensuring all beneficiaries are informed and that their rights are respected within the parameters of the trust.
- Prepare a final accounting of all transactions
- Provide reports to beneficiaries
- Obtain approvals or waivers from beneficiaries, if applicable
Final Distributions
Once all debts and expenses are settled, the trustee must:
- Distribute remaining assets according to the trust terms
- Transfer any real estate or business interests per instructions
- Obtain signed receipts or acknowledgments from beneficiaries
Filing Final Tax Returns
Some of the most critical trustee duties include managing distributions and handling claims, which are vital for maintaining trust integrity.
The trustee must ensure all tax filings are completed, including:
- The final trust tax return
- Any required estate tax filings
Key Trustee Duties to Remember
It is crucial for trustees to be aware of the key trustee duties that govern their responsibilities, ensuring they act in the best interests of the beneficiaries while adhering to legal requirements.
Understanding Trustee Duties
The role of a trustee encompasses various responsibilities, including but not limited to managing trust assets and ensuring compliance with legal obligations. Understanding trustee duties is essential for effective trust administration.
Obtaining Trustee Release
To avoid future liability, the trustee should seek a formal release from beneficiaries and, if necessary, a court approval of the final accounting.
Closing the Trust
Once all responsibilities are fulfilled, the trustee can formally close the trust, ensuring:
- No outstanding obligations remain
- All required legal filings are completed
Conclusion
Serving as a trustee is a significant responsibility that requires diligence, prudence, and transparency. By understanding and executing their duties properly from the start to the conclusion of their role, trustees can effectively manage trust assets and ensure beneficiaries receive their intended benefits. Seeking legal and financial guidance when necessary can help trustees navigate complex issues and fulfill their fiduciary obligations successfully.
The trustee must remain aware of their trustee duties throughout the trust administration process to avoid potential conflicts and ensure compliance.
Each of these trustee duties reinforces the importance of careful management and ethical conduct in fulfilling the role of a trustee.
The closing of the trust requires that all trustee duties have been executed properly, ensuring no loose ends remain.
Due to the numerous fiduciary duties a trustee is required to fulfil and the vast potential for liability if a trustee fails to fulfil any fiduciary duty, it is prudent for you, the trustee, to contact the Law Office of Eric J. Rechsteiner for a free consultation seeking advice on how to proceed with your trustee duties. The benefit of hiring the Law Office of Eric J. Rechsteiner, even if for administrative purposes, is that the trust will pay for attorney services relieving you, the trustee, from such expense. Choose wisely. 🙂
