Being trustee can be a thankless job, one with lots of stress and the risk of personal liability.
California law places the following legal duties upon the trustee of an incompetent or deceased person’s trust:
- The trustee has a duty to administer the trust solely in the interest of the beneficiaries. If a trust has two or more beneficiaries, the trustee has a duty to deal impartially with them and shall act impartially in investing and managing the trust property, taking into account any differing interests of the beneficiaries.
- The trustee must administer the trust according to the terms of the trust. In doing so, the trustee must use the care, skill, prudence, and diligence of a prudent person.
- The trustee must invest and manage trust assets as a prudent investor would, by considering the purposes, terms, distribution requirements, and other circumstances of the trust, using reasonable care, skill, and caution.
- The trustee has a duty to keep the beneficiaries of the trust reasonably informed of the trust and its administration. This includes duties of rendering proper trust accountings.
- The trustee has a duty not to use or deal with trust property for the trustee’s own profit or for any other purpose unconnected with the trust, nor take part in any transaction in which the trustee has an interest adverse to the beneficiary.
- The trustee must keep control of and preserve the trust property.
- The trustee has a duty to make the trust property productive under the circumstances and in furtherance of the purpose of the trust.
- The trustee has a duty to take reasonable steps to enforce claims that are part of the trust property.
- The trustee has a duty to take reasonable steps to defend actions that may result in a loss to the trust.
- The trustee has a duty not to delegate to others the performance of acts that the trustee can reasonably be required personally to perform.
- The trustee has a duty to apply the full extent of the trustee’s skills. If the person who created the trust relied on the trustee’s representations of having special skills, the trustee is held to the standard of the skills represented.
- The trustee must file all required tax returns and pay all required debts and taxes.
- The trustee must not receive improper compensation.
With a trustee’s duties comes the risk of liability. A trustee who violates any of the above duties can not only be removed as trustee, but also can be held personally liable. This risk of a trustee being liable extends to certain improper actions taken by a trustee’s agent or by a trustee’s co-trustee or by a trustee’s predecessor trustee.
When I meet a new client who is to act as trustee of someone else’s trust, I often find the right time to say these three phases: “You will be overworked; You will be under-appreciated; and You will be under paid.”
The job of the trustee’s attorney is to advise the trustee of how the law applies to their trust and to protect the trustee from harm and to assist the trustee in the successful and efficient administration of trust.
Without an attorney educating and advising a trustee, the trustee would never know the risks and potential liabilities of the trusteeship. No matter how intelligent a trustee is, and how much common sense a trustee has, a trustee would never know what the law requires of the trustee (and where the law places the trustee at personal risk) without proper legal representation.
James J. Phillips Copyright January 2017