When setting up a living trust, choosing your trustee is a key decision. The trustee is the “executor” of a living trust, the one who manages trust assets if you become unable to do so, and after you pass away, this person makes sure your assets go to the people you’ve chosen (i.e., your beneficiaries). If set up correctly, a living trust saves the expense, delay and publicity of probate court. However, the trustee still has a lot of work to do and should understand his or her legal obligations.
The whole process of administering a trust upon a grantor’s passing can take longer than a beneficiary or trustee may expect. In my experience, it typically takes around six to eight months to administer a trust from start to finish. If a trustee is serving due to the grantor’s incapacity, his or her service may take place over a very long period of time.
Duties of a Trustee
When a trustee assumes responsibilities due to a grantor’s death, many of the same duties apply as when serving because of a grantor’s incapacity. First, a trustee cannot lie, cheat or steal. I would hope that is a given! Other important duties include:
- Duty of loyalty: a trustee must act solely in the best interests of the beneficiaries and administer the trust according to the trust instrument. A trustee should be careful to avoid any conflict of interest in the management of the trust.
- Duty of care: a trustee must manage trust assets carefully and not take unnecessary risks. Trust assets should be secured and guarded against loss.
- Duty of impartiality: a trustee must treat all beneficiaries fairly, without favoring one over another, unless the trust specifies otherwise. Oftentimes, the trustee is also a beneficiary. In these cases, the trustee must not take actions that can objectively be viewed as favorable to himself over other beneficiaries.
- Duty to account: a trustee must keep a careful accounting of every transaction and provide an accounting to the beneficiaries at least annually. It is also important to keep the beneficiaries informed.
A trustee can be sued for breach of fiduciary duty if he knowingly, or even unknowingly, violates one of his legal duties. Thus, it is critical for a trustee to understand his legal obligations.
A trustee can be sued for breach of fiduciary duty if he knowingly, or even unknowingly, violates one of his legal duties.
The very first thing you need to do if you are a trustee is to read the trust document. The trust document is your guide. It outlines the instructions left by the grantor regarding the management and distribution of the trust’s assets. You should also make sure that you are, in fact, the named trustee to take over in the event the grantor can no longer serve.
Once you are sure of your role as trustee, start making an inventory of the grantor’s assets. After all, you cannot effectively manage assets if you don’t know what the assets are! This includes real estate, bank accounts, stocks, tangible property – everything that the grantor owns. It is very helpful if the grantor prepared a list of assets in advance, but that does not always happen. If there is no list of assets, you must sift through mail, e-mails, tax records and anything else that might help to discover the extent of the grantor’s assets.
As trustee, you need to gain control of the assets by obtaining documentation such as a doctor’s note to show the grantor lacks capacity or a death certificate in the event of a grantor’s passing. You will need to provide this documentation to banks and other institutions to be added on as the serving trustee of the grantor’s trust. Remember, it is critical to keep good records of your transactions as trustee. Be sure never to co-mingle your personal finances with the trust finances. Of course, you can reimburse yourself for trust expenses you personally paid, but these instances must be clearly documented.
Don’t be hesitant to seek professional help because managing a trust often involves complex legal, financial and tax-related responsibilities. A trustee may not have the expertise needed to navigate these areas effectively on his own, and mistakes can lead to legal liabilities or financial losses for the trust and its beneficiaries. An attorney can help interpret the trust document and ensure compliance with laws, while accountants can assist with tax filings and financial reporting. Financial advisors may be necessary to manage and invest the trust’s assets wisely. Professional guidance ensures the trust is handled properly, protecting both the trustee and the beneficiaries.
Stephen Wood is the founder of Wood Law, Wills & Trusts A.P.C. in Newbury Park. He is a State Bar of California Certified Specialist in Estate Planning, Trust, and Probate Law.
