A trust is a legal device that a person can use to transfer their property to someone else. Trusts also allow property owners, also known as “settlors,” to have the trust property managed on behalf of someone else, called a trustee. Trusts laws can vary from state to state, but in general, trusts are an efficient means of transferring property in a way that the property’s owner can control and manage. An example of this would be how a property owner may place certain conditions on the trust assets. These conditions would need to be met before the property would be transferred.
An express trust is one that is intentionally and deliberately created. The trust’s creator distributes property or funds to a named trustee, who then holds the property “in trust.” This means that the trustee holds legal title to the trust. The property is held in trust by the trustee subject to the rights of the beneficiary.
The creator of a trust is generally the person to name the trustee. If a trust document does not specifically name a trustee, the court will appoint one. As previously mentioned, the trustee is responsible for giving out property to beneficiaries, and is to complete distribution according to the terms set forth by the trust.
What Are Some Trustee Duties?
The specific duties assigned to any given trustee will likely vary based on the nature of the trust relationship. Duties may also be dependent upon the business, finance, or estate laws of each individual state. The trustee will be responsible for managing, investing, protecting, and safeguarding the assets that the settlor placed in the trust. As the law regards these duties as important obligations, a trustee is legally required to exercise particular fiduciary duties.
Fiduciary duties specific to a trustee include the following:
- Duty of Loyalty: The trustee must ensure that the beneficiary’s interests in the trust property are protected. As such, they cannot take any actions that favor themselves. An example of this would be using the trust funds for their own gain;
- Duty of Care: Trustees are to make decisions regarding when, how, and what to invest. They must make reasonable investment decisions and act prudently when doing so;
- Duty to Separate Funds: The trustee is not to mix their own funds with those of the trust. They cannot mix the trust assets with their own assets or bank accounts;
- Duty to Safeguard: This duty requires that trustees keep the trust assets safe. Trustees owe a duty to utilize methods of safeguarding assets in a manner that avoids theft. An example of this would be installing antivirus and anti malware software, if the money is invested online, in order to prevent the trust account from being hacked into;
- Duty to Invest: Should the trustee decide to invest the trust asset, they have a duty to ensure that the trust actually earns money while in the trustee’s care. This is similar to the duty of care;
- Duty of Accounting: The trustee is to make an accounting of, and keep records for, all financial transactions that concern the trust. Such records should include expenses related to administering the trust (such as broker fees), as well as money spent to improve the trust. An example of the latter would be if the trust is a rental property, and the trustee spends money to repair the property in order to make it more desirable to tenants and therefore generate income for the trust’s beneficiary.
What Is the Most Common Conflict Between Trustees and Beneficiaries? How Can a Trustee Avoid Conflicts?
The most common dispute between a trustee and a beneficiary occurs when the trustee breaches their fiduciary duty. Most state laws dictate that any violation of a trustee’s duties render the trustee legally liable. The beneficiary may file a civil lawsuit against the trustee if they can prove the breach. Should the suit be successful, the beneficiary may receive monetary damages equal to the full amount of the loss to the trust from the breach.
It is important to note that each state maintains a statute of limitations that state how long a beneficiary may wait before they will be unable to file a suit against a trustee. Additionally, a trustee may generally only be sued if there is a breach of duty. This means that there are not many other disputes between trustees and beneficiaries that could lead to a lawsuit.
To avoid conflicts, trustees should:
- Inform trustees of how the trust assets are being managed;
- Disclose all trust-related transactions that affect the beneficiary;
- Educate the beneficiary in regards to trust assets, management strategies, and their role as a trustee;
- Readily address all questions in a timely manner; and
- Never hide assets, documents, or other critical and relevant information from the beneficiary.
Do I Need an Attorney for Assistance With Trustee Laws and Duties?
If you are facing any sort of legal issues involving trustee duties, you should consult with a skilled and knowledgeable estate attorney. An experienced estate attorney can review the terms of the trust, draft a trustee relationship clause, or file a lawsuit on behalf of the beneficiary. Finally, an attorney can represent you in court as needed.