Florida Estate Planning Lawyer Blog
The duties of a trustee vary depending on the laws of the state in which the trust is situated and the extent of the trustee’s powers provided for in the trust agreement. In some cases where there are conflicts between the terms of the trust and the state laws, the duty or obligation can vary depending on what the state law permits. In some cases, the terms of the trust will prevail and in others, the default law cannot be modified by the terms of the trust. When you become a trustee of a trust, it is recommended that you sit down with a trust attorney to review the terms of the trust as well as how state law may impact the written terms of the trust.
In addition, the type of trust can change your obligations and the role of a trustee in dealing with beneficiaries. Below is a list of some of the typical duties that are contained in trust agreements and the laws of many states:
Fiduciary Duty. A trustee has a fiduciary duty to the beneficiaries of the trust, This includes both the current beneficiaries and any remainder beneficiary’s name in the trust. A fiduciary duty is a very high standard to do what is in the best interest of the beneficiary. This is not necessarily what the beneficiary asks for or what you want.
The Trust’s Terms. It is important to read the terms of the trust carefully and understand your duties and how state laws may impose additional provisions or remove or modify the terms of the trust. The trust is a flow chart of what actions you must take and when. Some states, like Florida, reduce the statute of limitations when certain disclosures are made. This can reduce the potential liability of a trustee to the beneficiaries.
Distributions. Many trusts provide discretion to make distributions to a beneficiary. When making these decisions, it may be necessary to evaluate their current needs and additional resources.
Accounting. Don’t be scared of the word accounting. While it is important, it is not something that often requires the services of an accountant. Generally a beginning balance, ending balance, and a list of transactions is required. From this, income is easy to calculate. In many cases this needs to be done on an annual basis, though the terms of the trust can often modify the trustee’s responsibility. Sometimes you must keep track of and report on principal and income separately.
Taxes. If the trust is not considered a “grantor” trust for tax purposes, the trustee will have to file an annual tax return and may have to pay taxes. In many cases, the trust will act as a pass through with the income being taxed to the beneficiary. In any event, if you keep good records and turn this over to an accountant to prepare any required tax documents. This is different than the Accounting and most people will require the help of an accountant to complete this duty. Trust funds can often be used to pay for these services and will often be considered an expense to the trust.
Duty to Give Proper Notice: Different trusts have different notice requirements. Some of the items that will be provided are copies of the trust as well as notice when certain actions take place. In addition, If a trustee resigns or is appointed, notice should be provided.
Duty of Loyalty: The trustee’s fiduciary duty is to the trust’s beneficiaries. The trustee may not put the trustee’s personal interests or that of another ahead of the beneficiaries. The trustee may need to be aware of the different types of beneficiaries in making decisions.
Duty to Invest Prudently: Most states have adopted a version of the Prudent Investor Rule. This rule requires a trustee to invest and manage assets as a prudent investor. To do this the purposes, terms, distribution requirements, and other goals of the trust must be considered. In many states the Prudent Investor Rule can be expanded, restricted or eliminated by express provisions in the trust agreement. A trustee might work with a professional investment advisor when dealing with the Prudent Investment Rule.
Duty Not to Commingle Funds: The trustee has an absolute duty not to mix or commingle personal assets with trust assets. The trust property must always be kept in separate bank accounts.
Duty to Pay, Enforce and Defend Claims: The trustee has a duty to evaluate all claims and pay valid claims from the trust. This includes administrative fees, fees for professional services, and fees incurred in maintaining trust assets. The trustee may also be responsible for pursuing and defending claims on behalf of the trust. In some cases, it may be more cost effective to abandon a claim, but one needs to carefully document and evaluate such decisions.
Duty of Confidentiality: the trustee should keep trust matters confidential unless otherwise required by the trust agreement or by law. The trustee should ensure that any information about the beneficiaries be kept confidential.
Duty Not to Delegate: The trustee has a duty not to delegate trustee functions that could otherwise be performed by the trustee, particular those duties that require the judgment and discretion of the trustee. It may be necessary, especially in the context of prudent investing, to employ certain agents to assist with the investment decisions of the trust. A trustee does not have to list a home for sale or invest funds of the trust unless they have some specialized training that would make the trustee competent to perform such activities.
Fees. Trustees are entitled to reasonable fees for their services. The fees are income and would generate tax liability to the trustee. Family members often do not accept fees. State statutes often define what fees are considered reasonable. Banks, trust companies, and law firms typically charge a percentage of the funds under management.
The duties of a trustee can be simple or complex depending on the type of trust, the size of the trust, and terms of the trust. It is best to sit down with a Trust Attorney or Trust lawyer before accepting your role as a trustee to make sure you understand what you will be responsible to do, and what your liabilities could be for not acting properly.