In its broadest sense, a “trustee” is a person who holds property or assets in trust for one person, to be transferred to another person. The classic example of this is when a person creates a valid trust. Here, the trustee is the person holding the property until the conditions are fulfilled for the transfer from the donor to the beneficiary.
More specifically, the term “trustee” can also apply to other situations. For instance, a person who holds property for another during a bankruptcy proceeding may be referred to as a “bankruptcy trustee”. Another example is where an organization operates under the direction of “board of trustees” whose task is to oversee the group’s finances. This is common for many non-profit organizations.
Upon taking up their position, trustees are expected to fulfill certain obligations to the parties involved, and to fulfill their fiduciary duties. These may include:
- Not using the funds for their own private purposes
- Avoid commingling assets with personal assets or bank accounts
- Maintaining loyalty to the trust, donor, or non-profit organization
- Being impartial (not desiring to profit from the relationship or arrangement)
- Maintaining accurate records
- Exercising prudence if entrusted with the task of investing funds
- Following various confidentiality and privacy standards
Again, the specific duties for any trustee will depend on the nature of the trust relationship, and upon the business or finance laws in the region.
A business trustee who violates their duties can expect to see some legal consequences. These can include them being:
- Removed from their position as trustee
- Replaced by another trustee
- Required to pay damages for losses due to their breach of duties (from their personal resources)
- Subject to a trust modification or a rewriting of the organization’s bylaws to reflect the legal issues
In most cases, trustee disputes are processed through a civil claim in a court of law. Each side should be represented by their own attorney (for instance, they both can’t be represented by the same attorney who works for their company).
Courts have declared that "a trust will not fail for want of a trustee." If the trust creator failed to appoint a trustee, the court will simply appoint one.
This depends on your resources and your needs. Most banks have a branch dedicated to managing trusts. Other companies which manage trusts are also reliable. Banks and corporations typically have employees who are excellent at managing property and have large amounts of capital/government guarantees to ensure that if the bank does lose your property, it will be replaced.
The downside to these professional trust holders is that they often charge a lot of money for their services. They also have layers of procedures and rules which can make it difficult to amend the trust. They often prioritize beneficiaries based on trust law and liability rather than what the trust creator would do.
Individuals who are close to the trust creator, such as close friends or family, will often manage the trust out of loyalty and are thus cheap, if not free. Since they are close to the trust creator, they often know what to do with the property if the trust creator is not available.
On the other hand, most individuals do not know how to manage property in accordance with trust law.
There is no rule against appointing the lawyer who drafted the trust to be the trustee. Many trust creators find this arrangement helpful since it saves time and money.
The only drawback is that courts will examine trustee profits or exculpatory clauses more carefully. Exculpatory clauses are clauses in trusts designed to shield the trustee from liability. The fear is that lawyers who draft trusts and act as trustee can abuse their positions to reap unjust profits or avoid liability that third-party trustees would normally take on by being trustees.
If you plan to appoint the lawyer who drafted your trust as a trustee, pay special attention to trustee profits and/or exculpatory clauses.
Any type of legal issues involving a trustee should be handled through the expertise of an estate planning lawyer. If you need assistance with filing a lawsuit, drafting a trustee relationship clause, or serving on a board of trustees, you may wish to hire an business lawyer for help. Your lawyer will be able to provide you with valuable legal guidance and can represent you if you need to appear in court.