Key Takeaways
- A trustee is an appointed individual responsible for managing and administering a trust and distributing trust assets to beneficiaries.
- Trustee responsibilities outlined in the California Probate Code include duties such as the duty of loyalty, impartiality, and prudence.
- A key part of a trustee’s duty involves managing trust property, maintaining a commitment to growing trust assets, and avoiding conflicts of interest, and distributing this property to beneficiaries.
- A trust administration attorney can be a valuable resource for a trustee in ensuring they understand their duties and appropriately navigate the process of managing the trust and distributing its assets.
Introduction
A trustee serves a vital role in carrying out the interests of a trust creator, also known as a trustor, and ensuring that the instructions of a trust are fulfilled responsibly. The key duties of a trustee are outlined in California Probate Code §16000, which specifies important processes for trust administration and a trustee’s role in that process.
A trustee often has a long list of responsibilities to carry out the administration of a trust properly, ranging from paying trust expenses and debts to distributing assets to beneficiaries. In addition to these tangible acts, a trustee must also be sure that they are acting with fairness, impartiality, and due diligence to protect the trust and its interests.
Whether you are a trust beneficiary looking to understand your rights or a trustee wanting to ensure you cover all your bases, it’s important to remain familiar with trustee responsibilities laid out under the California Probate Codes. This guide outlines everything you should know about managing a trust.
Overview of Trustee Duties
A trustee is an individual appointed to manage assets held in a trust. Once appointed, the trustee is legally in charge of all the assets owned by the trust. In some cases, the trust allows the trustee to make financial decisions on behalf of the trust, like selling a home or managing financial assets, if it benefits the trust.
However, the California Probate Code trustee duties make it very clear that the Trustee is obligated to act in the best interests of the trust beneficiaries. The California Probate Code states: “The trustee has a duty to administer the trust solely in the interest of the beneficiaries.”
The necessary responsibilities of a trustee include:
- Locating trust documents;
- Locating and securing trust property;
- Identifying trust beneficiaries and determining their inheritance rights;
- Identifying trust creditors and debts and determining what valid creditor claims exist;
- Preparing the trust to pay debts and make distributions to beneficiaries.
California Probate Code §§ 16000 – 16015 covers the scope of trustee duties more in-depth, ranging from the actions they are responsible for to how they should conduct themselves in the process.
Core Responsibilities of Trustees
A trustee has an important role and is a fiduciary responsible for acting on behalf of a trust. This position means that the trustee has a fiduciary duty to act in the best interests of a revocable or irrevocable trust and its beneficiaries. This duty can be broken down into a few core responsibilities.
Duty of Loyalty
Trustees have a duty to act in the best interests of a trust and its beneficiaries at all times, meaning that any actions they take must align with the intentions of the trust creator. A trustee must closely follow the instructions listed in the trust document as intended by the trust creator.
Duty of Impartiality
A trustee must remain neutral and impartial in their actions when managing trust assets. This impartiality is especially important when a trustee is a family member or a beneficiary of the trust themselves. The trustee must act without bias and closely follow the instructions of the trust.
Duty of Prudence
Trustees must act responsibly and cautiously when managing trust assets. This means they should be mindful of avoiding risky investments and questionable sales of property that could result in the trust losing value.
Managing Trust Property
A key part of a trustee’s position is to responsibly manage trust property throughout the administration of the trust, ensuring the property preserves its value and is appropriately transferred to beneficiaries with the greatest possible value.
Avoiding Conflicts of Interest
Because the trustee position is one of considerable responsibility, it’s important that the trustee acts responsibly and avoids engaging in actions that may be considered a conflict of interest. A conflict of interest is any situation where the trustee takes an action that is acting in their own personal interest rather than in the best interests of the trust and its beneficiaries.
Potential conflicts of interest might include
- A trustee selling trust property to a close friend at below market value
- A trustee uses trust funds to make personal purchases
- A trustee favors one beneficiary over the others with more favorable distributions
- A trustee hires a friend’s business to handle maintenance for trust property without disclosing to the trust beneficiaries
The trustee should be mindful of the instructions included in the trust at all times to ensure they are fully acting in accordance with the intentions of the trustor. A trustee can avoid conflicts of interest by consulting a trust administration attorney before taking action on behalf of the trust. A family member who is a trustee may not intend to have any biases or favor any specific person, but may unintentionally do so due to family dynamics. Even where a trustee may believe that they are acting impartially, bringing in an attorney- a true third party- can help ensure that the decisions being made are not being made with an unintended bias.
Keeping Trust Property Distinct
Trust property should remain distinct from any of the trustee’s personal property throughout their management of the trust. Self-dealing is a serious violation, and a trustee must be able to separate trust assets from personal assets by keeping separate accounts for managing trust funds and investments. It’s essential that the trustee responsibly manages these assets as a trustee with a trust account rather than mixing trust funds with personal funds in any way.
Maintaining the Productivity of Assets
A trustee should ensure that they are maintaining the productivity of assets as much as possible. A trustee should always be seeking to advance the interests of the trust and make these assets productive so they can generate trust income and increase the overall value of the trust for beneficiaries.
For example, a trustee should be seeking to grow trust assets like investment accounts as much as possible. This responsibility means keeping a close eye on investment progress and reallocating investments that may be underperforming. If a trust account is failing to generate income, then the trustee should consider strategies for reinvesting trust assets for more productive income.
Investment Responsibilities
A trustee has a responsibility to manage all investment assets with due diligence, skill, and caution in order to preserve and grow the value of trust assets. The California Uniform Prudent Investor Act, established by California Probate Code Section 16045, states that a trustee owes beneficiaries a duty to comply with the prudent investor rule, which states that a trustee should invest and manage trust assets as a prudent investor would, being mindful of the terms of the trust and exercising reasonable care.
A responsible trustee should consider all the following factors in their management of investments:
- Economic conditions
- Effects of inflation or deflation
- Tax consequences of investment decisions
- The role of investments in the overall trust portfolio
- The expected total return from both income and appreciation of the capital
- The need for liquidity, regularity of income, and preservation or appreciation of capital
- An asset’s sentimental value or special relationship to any beneficiaries of the trust
A trustee should closely monitor investment performance and make adjustments if needed to ensure these investments are maximizing trust income. If a trustee is not confident in their ability to manage investments successfully, then they may consider consulting a financial advisor or investment professionals for support.
Record Keeping and Reporting
Covered under Probate Code Section 16062, a trustee should maintain accurate record-keeping of all trust transactions carried out as they administer the trust and manage trust property. Much like a bank statement, these records should demonstrate the beginning value of the trust and its assets upon the trustee assuming their role, the current or ending balance, and all transactions made in between.
These records should be regularly shared with beneficiaries so that they can understand trust income, income sources, and trust expenses, including who was paid and for what purpose. Reporting should include trustee compensation and beneficiary distributions.
All together, important information to include in these reports includes:
- Receipts of property sales
- Accounts of transactions
- Bank statements
- Investment account statements
A trustee has a responsibility to provide an accounting at least annually to each trust beneficiary, at the termination of the trust, and upon a change of trustee. Beneficiaries also have the right to request a copy of the trust accounting at any time during the administration of the trust.
Handling Claims and Legal Issues
Trustees must be able to navigate any claims or legal issues involving the trust as they arise. Claims may include creditors attempting to seek repayment from the trust, expenses necessary for managing trust property, or other demands that could result in losses to the trust. In the case of creditor claims, it is the trustee’s responsibility to manage these claims and determine which are valid and require resolution using trust funds.
Other legal issues related to the trust may involve claims of breach of fiduciary duty against the trustee or disputes between beneficiaries who believe they are entitled to a larger share of an inheritance from a trust. The trustee is responsible for navigating disputes that arise amongst beneficiaries or other interested parties. If disputes are not easily resolved, then trustees should consult a skilled trust litigation attorney for support as soon as possible to mediate disagreements or navigate the process of litigation.
Legal Liabilities and Fiduciary Principles
A trustee has an important role that may come with significant liabilities if not taken seriously. Between their responsibilities and their fiduciary duty to manage the trust, the trustee may face consequences if they do not act responsibly and adequately fulfill their obligations to the trustor.
If a trustee breaches their fiduciary duty and is negligent or actively malicious in their management of the trust, they may be held personally liable for any losses to the trust. In such a case, a trustee may be required to reimburse the trust for the losses they are responsible for, and in some cases, they may have to pay double damages to compensate the trust and its beneficiaries for wrongdoing. If a trustee acts with misconduct or engages in a breach of fiduciary duty, they may not only be responsible for compensating the trust, but they may also be removed from their role.
Collaborating with Co-Trustees
If there are multiple trustees responsible for managing the trust, it is important that they have a unified plan for managing tasks related to the trust and collaborating throughout the process. Co-trustees may be appointed to create checks and balances in trust management, combine multiple skill sets, or provide additional convenience for managing assets across multiple locations.
Both trustees should maintain consistent communication with each other throughout the administration of the trust. This may include maintaining regularly scheduled meetings, keeping a written record of meetings and emails, and having a direct line of communication with each other.
Co-trustees should also be closely aligned on decision-making. This alignment should include actively communicating any decisions made surrounding the trust, giving advance notice before taking crucial actions, and setting clear roles and responsibilities for each individual.
If the Co-Trustees are not aligned and the misalignment is holding up administration of the trust, either a Co-Trustee attempting to move forward or a beneficiary should reach out to an experienced Trust litigation attorney to assist them in getting the stalled Co-Trustee or Co-Trustees to move forward or step down to prevent further delay and potential depreciation of trust assets.
Communicating with Beneficiaries
A trustee must ensure that they are maintaining continuous communication with beneficiaries throughout the process. Beneficiaries have a right to receive regular updates about the administration of the trust, and trustees have a duty to keep beneficiaries reasonably informed.
Trustees should communicate with beneficiaries about the beginning of the trust administration process, important transactions involving trust assets, and updates on the progress of trust administration and distribution timelines. In addition to the required accountings a trustee is required to provide under California law, a trustee should ensure that beneficiaries know what to expect from the process.
It’s advisable that a trustee provide beneficiaries with a direct line of communication to reach out with any questions. A trust administration attorney can be a valuable resource for supporting a trustee in understanding their obligations to communicate with beneficiaries and in meeting their reporting requirements.
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A trustee serves a vital role in ensuring that an individual’s trust is responsibly managed and that the assets are distributed to the appropriate beneficiaries.
This role involves considerable responsibility and an in-depth understanding of the steps required by California Probate Law so you can fulfill your duties and act in the best interests of the trust.
If you are a trustee in need of support in understanding your fiduciary responsibilities, the trust administration attorneys at RMO Lawyers can help you navigate the process within the laws of your local jurisdiction. We have decades of experience in trust administration and an in-depth understanding of the California Probate Codes to guide you through the necessary steps. Meanwhile, if you are facing a dispute surrounding a trustee’s actions, our team of probate litigation attorneys may be able to assist in seeking a resolution sooner rather than later.
Schedule a consultation with the attorneys at RMO to discuss your case and learn more about how we can support.
Glossary
Co-Trustees – Two or more individuals or entities appointed to jointly manage a trust.
Grantor – An individual who transfers their assets into a trust to be passed down to their children or future generations.
Settlor – Another word for “grantor,” a “settlor” is someone who creates a trust.
Trust – A legal agreement that grants a third party, or fiduciary, the authority to hold and manage assets for the beneficiaries of an estate.
Trustee – A person appointed by a trust’s creator to coordinate the administration of the trust, manage the trust’s assets and distribute the assets to the trust’s beneficiaries.
Beneficiary – A beneficiary is any individual in line to inherit assets like money or property from a deceased individual. A beneficiary can be determined by state law or named in a will or trust document.