Responsibility of a Trustee

A trustee assumes the fiduciary responsibility of a trustee by managing the assets and distributing the profits to the beneficiaries according to the trust terms.

By Brad Nakase, Attorney

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What Are the Responsibilities of Trustees?

A trustee is tasked with managing and holding property for the benefit of the beneficiaries of a trust. Obviously, this places a large amount of power in the hands of a trustee, which is why they are limited by a set of regulations known as fiduciary duties. Whether an individual is a beneficiary or a trustee, it is crucial that he or she understand these responsibilities and the consequences that are associated with violating them.

What Does Fiduciary Duty Mean?

A fiduciary is an individual who is chosen to act on behalf of another individual by placing that individual’s interests before their own. The law thinks of a fiduciary duty as the highest level of responsibility that a person may perform. For instance, a lawyer qualifies as a fiduciary because he or she is supposed to promote the interests of their client. However, fiduciaries usually have to do with finances of some kind or other, so more typical examples include money managers, trustees, and accountants.

Beneficiary of a trust often wants to do what does a trustee do. When a trust is set up, an individual must be placed in charge of the property, money, and whatever other assets are in the trust. This individual is the trustee, and the trust as well as fiduciary law establish the obligations that the trustee must follow. In general, the trustee is granted rather extensive authority when it comes to making decisions. The main question concerns whether they acted in the interest of the trust’s beneficiaries.

According to the California Probate Code, trustees are required to manage trusts with reasonable care, conduct, and skill to the same level that a prudent individual would in their mission to realize the trust’s terms. Further, should the trustee have a particular set of skills, such as managing money, then he or she should make use of those skills in performing their duties for estate planning.

What Are the Fiduciary Duties of a Trustee?

Bearing these concepts in mind, let us examine the more typical fiduciary duties that trustees are beholden to according to the California Probate Code:

  1. Following the language of the trust: Certain terms must be followed, such as meeting any legal duties concerning the trust. One of the primary duties of the trustee is executing the terms of the trust faithfully.

  2. Not delegating: The trustee may not give their authority to another party, even though they are permitted to give the responsibility to invest to other parties. In addition, a trustee can rely on the expertise of professionals so they may advise.

  3. Avoiding conflicts: It is important to be impartial, which means that the trustee cannot display bias toward any of the beneficiaries.

  4. Show loyalty: Like the responsibility of avoiding conflicts, the trustee needs to be loyal to the interests of the beneficiaries. Proof of self-dealing or acting for the interest of an individual other than the beneficiaries would violate this duty.

  5. Accurate record keeping and reporting: Trustees must routinely report to beneficiaries about income, expenses, and trust assets. Part of this responsibility requires accurate records to be maintained.

  6. Setting aside personal fund: A major breach of fiduciary duty would be commingling trust funds with personal funds, or mixing the assets of one trust with those of a different one. This violation is known as commingling.

  7. Duty to label: Sometimes referred to as the duty to earmark, this duty is similar to the obligation to separate trust funds from others. The trustee is tasked with making sure that trust property is obviously marked as such so that there is no mixing.

  8. Duty to invest: A trustee is required to invest assets of the trust as any responsible investor would, which includes diversifying investments where needed. To perform this task, the trustee may take into account the terms of the trust and purpose. However, they should generally try to invest the assets productively.

What Happens When Someone Violates the Fiduciary Duties of Trustee?

Beneficiaries are granted a large range of possible legal avenues if their trustee violated their fiduciary duties. Beneficiaries are could initiate litigation with the help of a business dispute attorney in Los Angeles should the trustee even threaten to breach their duties. Some of these legal remedies include the following:

  • Preventing the trustee from committing a breach
  • Forcing the trustee to carry out the trustee’s duties
  • Suspending the trustee
  • Recovering monetary and other kinds of damages
  • Removing and replacing the trustee with another individual
  • Denying or reducing the trustee’s payment
  • Recovering property and money wrongfully disposed of
  • Placing a constructive trust or an equitable lien on trust property
  • Setting aside decisions and acts made by the trustee
  • Taking other action as needed

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