A trustee occupies a position of trust, confidence and responsibility, and when an individual agrees to take on the role of a trustee of a trust, they are taking on specific financial duties to the beneficiaries of that trust. It’s imperative to fully grasp what these duties entail so as to properly carry out all obligations. A trustee holds a position of trust, confidence, and responsibility. When someone agrees to become a trustee of a trust, they take on specific financial duties towards the beneficiaries of that trust. The responsibilities and duties of a trustee are outlined in the document that creates the trust, whether it is a will or a trust agreement
Trustees can be appointed by a trust creator when establishing a trust, or later by a court if a vacancy arises. Individuals typically take on the important role of trustee to handle assets and affairs for the benefit of others. This article will explore the key trustee fiduciary duties owed to the beneficiary.
The most fundamental duty a trustee owes is the duty of loyalty. This means the trustee must administer the trust solely in the interest of the beneficiaries. Trustees cannot use their position to benefit themselves or others at the expense of the beneficiaries. For example, a trustee cannot engage in self-dealing by selling trust assets to themselves or companies in which they have an interest. The trustee must avoid any conflicts of interest that could interfere with acting in the best interests of beneficiaries.
KEEP ASSETS SEPARATE
Related to the duty of loyalty is the duty to avoid co-mingling of trust assets. A trustee must keep trust assets separate from their own personal assets. Trustees should never deposit trust funds into their personal bank account or invest trust assets into businesses they own. Co-mingling of assets can make it unclear whether certain assets belong to the trust or the trustee personally. This can create major issues in accounting and can facilitate misappropriation of trust assets.
Trustees also have a duty of impartiality when there are multiple beneficiaries. The trustee must treat all beneficiaries equitably in light of their respective interests under the trust. They cannot favor one beneficiary over another unless expressly authorized by the trust instrument. Even if beneficiaries have conflicting interests, the trustee must manage the trust by balancing these interests in an impartial manner.
MANAGE AND INVEST
Additionally, trustees have a duty to properly manage and invest trust assets. Trustees must adhere to standards of prudent investment and reasonable care in making decisions regarding investing, selling, and general administration of trust assets and property. They are expected to possess reasonable levels of skill, knowledge, and experience in managing finances and property. Trustees must be proactive in wisely investing assets to generate income and appreciation for beneficiaries, while also ensuring proper levels of liquidity, diversification, and risk avoidance.
ACCOUNT FOR ALL TRANSACTIONS
Along with judiciously investing assets, trustees also have a duty to properly account for all trust transactions. They must maintain detailed records and provide periodic statements to beneficiaries. Trustees should keep organized books containing full and accurate records of all money or property received or paid out on behalf of the trust. Some examples of important documentation include bank statements, receipts, ledgers, invoices, and tax returns. These records allow for the ability to trace the receipt and disbursement of all trust assets. Additionally, trustees have an obligation to provide written statements of accounts to beneficiaries at least annually, or whenever reasonably requested.
Statements should contain relevant information about trust transactions such as money coming in and money paid out during the accounting period. Providing detailed statements in a timely manner allows beneficiaries to continually monitor trust administration and ensure assets are being appropriately handled. If records are imprecise or incomplete, trustees may be compelled to appear before the court for a formal judicial accounting. This accounting allows the court to settle any doubts related to the trustee’s management of assets. In sum, properly tracking and disclosing all trust transactions through accurate recordkeeping and account statements is imperative for trustees to demonstrate they have acted in good faith in the interests of beneficiaries.
DISCLOSURE AND TRANSPARENCY
The duty of disclosure and transparency is another key fiduciary obligation. Trustees must provide beneficiaries with material information related to trust administration and assets. At the outset, they should furnish beneficiaries with a complete copy of the trust document, so beneficiaries are aware of trust terms and their rights. Beyond the trust terms, trustees also need to disclose any significant changes involving the trust, such as changes in beneficiaries, the trustee’s contact information, or the domicile of the trust.
Additionally, trustees have a responsibility to provide full and accurate information to beneficiaries pertaining to administration and investments. This includes disclosure of what assets are contained in the trust, where assets are located, what transactions have occurred, and what fees are paid out of the trust. Trustees should not withhold information related to decision-making that could impact beneficiaries’ assessment of the trustees’ actions.
If any issues arise during trust administration, such as a conflict of interest, the trustee must promptly notify affected beneficiaries. Trustees also need to notify beneficiaries in advance of deviations from the trust instrument, so beneficiaries have an opportunity to object if they believe the deviation would be improper.
Overall, the trustee must exhibit complete transparency with beneficiaries and demonstrate the transactions being made align with fiduciary obligations. A lack of openness may signify the trustee is engaging in improper self-dealing or negligence. Active disclosure and communication allow beneficiaries to continually evaluate the trustee’s performance and trust that assets are being properly handled in the beneficiaries’ best interest.
Finally, the duty of prudence requires the trustee to carry out their responsibilities with proper care, competence and diligence. Trustees must exhibit the degree of care and judgment that a reasonable prudent person would employ when making decisions impacting the trust and beneficiaries.
In summary, fiduciary duties create high standards trustees must meet when serving in a position of trust over assets and affairs that impact the interests of beneficiaries. Adhering to these duties is essential for trustees to fulfill their overarching obligation to act solely in the beneficiaries’ interests rather than their own interests. Understanding fiduciary duties allows trustees to effectively execute their important role. Beneficiaries also benefit from comprehension of fiduciary duties by gaining knowledge to hold trustees accountable to their obligations. Overall, following fiduciary responsibilities establishes critical protections for beneficiaries while also guiding trustees in lawfully and ethically carrying out their role.