If you’re reading this article, it’s probably because a) you find yourself in the unenviable position of being the trustee of someone’s trust, or b) you suspect you will be in that position in the future. In either case, you have no idea what this means, or what a trustee actually does.
Fortunately for you, most trusts spell out your duties as trustee, and the Probate Code fills in any potential gaps. Unfortunately for you, both of these documents are written in that dry, dense writing style commonly known as “legalese.” But don’t despair; as a lawyer, I am fluent in legalese and will provide you a summarized version in standard American English.
Duty #1 – Administer the trust according to its terms. This is pretty basic: you have follow the directions given in the trust. Typically these include paying off the trustor’s[1] debts and giving their assets to the person, people or entities the trustor wanted them to go to. You can’t take trust money and buy yourself a Ferrari (unless the trust tells you to, of course).
Duty #2 – Act solely in the interest of all the beneficiaries. I’m technically lumping two duties into one rule, but I don’t want this article to go on forever. The trustee has to act in the best interests of the beneficiaries – all the beneficiaries. The trustee can’t pick favorites, and must treat all beneficiaries impartially. The trustee also can’t do anything that would benefit the trustee but hurt one or more beneficiaries.
Duty #3 – Collect, control and preserve trust property. I almost had 3 “c’s” in a row, but I couldn’t think of a good synonym for “preserve” that started with “c.” Ah well. Since it’s the trustee’s duty to manage and distribute the assets, that necessarily means the trustee has to make sure all the assets are in the trust, under the trustee’s control, and not likely to go down in value before it’s time to distribute. Practical steps to preserve trust property include maintaining any insurance already in place, preventing damage to real property or physical items, and repairing any damage that does occur. A trustee should also make sure investments don’t drop in value (to the extent the trustee can), which leads into the next point.
Duty #4 – Make the trust property productive. If a trustee is holding the trust assets for any length of time, the trustee must do something with the assets that will bring income into the trust. A house can’t sit vacant for years; if it’s not being used, it must be sold or rented. Cash should be invested, or at least put into an account that earns interest (there are also a lot of rules about the prudent investing of trust assets, so it would be wise to consult a professional).
Duty #5 – Keep the beneficiaries informed about the trust and its administration. This rule gets a lot of trustees in trouble. A trustee can’t keep beneficiaries in the dark about the fact that there is a trust, or about what’s going on with the trust assets. If a beneficiary asks, and the information they are asking for is relevant to them, the trustee is required to give it. The trustee must also give an account to the beneficiaries – in other words, the trustee must tell the beneficiaries about any money that went out of the trust, and any money that may have come into the trust. This is required annually, at the termination of the trust, and any time a new person comes on as trustee.
This is a very broad overview of what’s expected of trustees. Some things were condensed, and others were left out in the interest of keeping you awake. If you would like a more detailed explanation of what’s required of trustees, or need assistance administering a trust, please contact me at kaway@kawaylaw.com.
[1] trustor = person who created the trust