An essential aspect of estate planning is the Trustee, who will be tasked to carry out wishes. This is such an important role that potential Trustees are usually asked if they would be willing to take on the responsibility before being named in a Trust. Occasionally, however, Trustees are surprised to find that they have been named. Regardless of how the role comes to you, the Trustor (sometimes called “Settlor,” “Grantor,” or “Trustmaker”) trusted you and believed you to be responsible. Selection as Trustee is an honor, but attorneys know that it can be quite an undertaking.
What does the Trustee do?
The Trustee has a fiduciary duty, which is the highest duty a person has to the beneficiary (sometimes the Trustor and other times the Trustor’s beneficiaries). The person must act with the utmost good faith, putting the Trustor’s interest before his or her own while managing the Trustor’s finances in accordance with the Estate (during their life) and/or administering the Trust (when the Trustor passes away).
Some examples of fiduciary responsibilities include, but are not limited to, taking possession of Trust property; collecting all dividends, cash, death benefits, income, and other payments due to the Trust as a result of decedent’s death; depositing those collections into a Trust account; keeping the Trust property insured if necessary; filing all tax returns and paying all taxes; and keeping a detailed account of all receipts and disbursements of the Trust.
Some things a Trustee is legally prevented from is using trust property for his or her own profit or benefit; obtaining any advantage over a beneficiary; taking part in a transaction against a beneficiary; favoring one beneficiary over another; or co-mingling his or her own property with the Trust property.
Trustee During Incapacity
The Trustee’s role is most difficult when acting for an incapacitated individual, which requires that the Trustee manage all financial responsibilities, and more. This may mean paying property tax bills, ensuring a safe residence or care facility, and making sure that the appropriate care is being given. The needs of individuals may vary widely and change throughout care periods, so the Trustee’s duties and tasks may continually evolve.
Trustee After Death
After the Trustor passes away, the Trustee’s role is to administer the Trust Estate in accordance to the Trust. This generally means notifying beneficiaries, paying creditors (e.g. final medical and funeral expenses, etc.), and, once administrative tasks are complete, distributing assets to the Trust beneficiaries per the terms of the Trust. Distribution may be accomplished by creating another Trust, distributing outright to individuals, and/or donating to a charity.
Is A Trustee Required to Manage the Trust or Estate on His or Her Own?
The Trustee is permitted to hire professional assistance, and many do, however, some duties and responsibilities are non-delegable. In order to properly administer the estate—a process that the Trustee may be managing for the first time—the Trustee may call upon a team of professionals. Trustees will often work with an attorney to help them through a complex administration process, and may also engage a financial advisor, tax professional, and appraiser. Trustees need not perform all of the work themselves, but are bound by their responsibility to seek out and engage capable professionals.
Fulfilling the duties of a Trustee can be a rewarding experience, but it is also quite challenging and carries with it a high level of responsibility. If you have agreed to be a Trustee (or are surprised to find that you have been named one), speaking with a Trusts and Estates attorney can help ensure that you do not breach your fiduciary duty. Unfortunately, certain types of breaches can expose Trustees to personal liability for the damage caused to beneficiaries or the Trust Estate.
This article features takeaways from the presentation that Ed Corey, Mary deLeo, Gary Rothstein, and Carlena Tapella made at the 2021 Professional Fiduciaries Association of California (PFAC) conference: Best Practices for Fiduciaries: So You’ve Been Named Trustee; Now What?