In California, trustees overseeing trusts have various special duties to the beneficiaries. Trustees risk legal liability if they do not uphold their duties. When the creator of a trust passes away and appoints a relative as successor trustee, the relative will need to figure out what to do for the trust. Relatives who have no experience with managing a trust should hire professionals to help out, while still upholding the duties of a trustee in delegating trust needs.
Duty of Care
Trustees have a special duty of care to act in the best interests of the trust beneficiaries. They must not make decisions that could harm the beneficiaries or their interests. Decisions should be made with the care, skill, and caution that a reasonable person would take under the circumstances, with the goal of accomplishing the trust’s purposes.
Some trustees have special skills such as accounting experience, real estate knowledge, or expertise in investing. They should use these skills in administering the trust. Many trustees, however, do not have experience in areas needed to manage the trust with the utmost care. These trustees should prudently select professionals and delegate responsibilities such as preparing tax returns for the trust to them.
Duty of Loyalty and Impartiality
Trustees have the duty to act impartially when considering the interests of various beneficiaries. Often, trusts have multiple beneficiaries receiving different distributions from the trust. Sometimes, the trustee is a beneficiary. The trustee cannot favor any one beneficiary over the others. He or she should avoid the appearance of “self-dealing”, by not entering into transactions that appear to favor himself over beneficiaries, or by obtaining beneficiaries’ prior consent to do so. Self-dealing and favoring one beneficiary could create a conflict of interest for the trustee.
The legal document that creates a trust often gives the trustee certain discretionary powers. This means that the trustee can use judgment to make choices in some situations. For example, the trustee may have discretion to make distributions of trust assets to beneficiaries on their request. As described above, the trustee must act in good faith and without bias in deciding whether to use this power. The trustee could decide not to make a distribution to one beneficiary on his request because it would harm the beneficiaries’ interest as a whole.
Duty to Prudently Invest Trust Property
The trustee’s duty to invest trust property can be extremely challenging and time-consuming in practice. Not only must the trustee remember his or her duties of care and loyalty in picking investments, but he must also navigate the complicated world of investing to try to make the trust money or make it productive. This duty and the many others trustees must uphold will be discussed in more detail in future blogs.
Need help managing a trust? Look to Janet Brewer, Esq. for thorough and thoughtful estate planning advice. Janet’s more than 20 years of legal experience and her certification as a California estate planning and probate specialist by the California State Bar Board of Legal Specialization will give you confidence and peace of mind. To schedule a “Get Acquainted” meeting, visit Janet's website or call her office at (650) 325-8276.