It is very common for clients to name adult children or other reliable family members as successor Trustees to serve upon the incapacity or death of the client. Being a Trustee is both a privilege and an honor, but also carries an enormous responsibility; it can be a really difficult and time-consuming job to take over.
Trustees’ duties are numerous and varied, dependent upon the type of trust, the terms of the trust, and the trust assets. Here are five common duties for all Trustees.
1.) A Trustee owes a fiduciary duty to the beneficiaries.
“Fiduciary” means that the Trustee owes the highest duty of loyalty, fair dealing, and good faith to the beneficiaries of the Trust. Generally speaking, this means the Trustee must always act in the best interests of the beneficiaries, not his own. A breach of a Trustee’s fiduciary duty includes using Trust assets to invest in a business owned by the Trustee, purchasing real estate from the Trust for personal use, or personally profiting from service as Trustee by taking a commission on the sale of real estate. A Trustee who misappropriates Trust monies has clearly breached his fiduciary duty.
2.) A Trustee has a duty to carry out the terms of the Trust.
Clients may sometimes be under the impression that a Trustee is in the position of making ALL decisions regarding distributions from the Trust; while some Trusts may grant the Trustee discretion to make certain types of distributions, the Trustee may not act contrary to the terms of the Trust. For instance, if the Trust instructs the Trustee to sell all real estate properties and distribute the proceeds equally amongst the beneficiaries (after paying expenses), the Trustee does not have the authority to do otherwise. Beneficiaries of a Trust have the right to know the terms; therefore, the Trustee may not refuse to divulge information concerning their interests.
3.) A Trustee has a duty to account to the beneficiaries.
Trustee’s must keep accurate records of all Trust financial activity, and they must share that information with the beneficiaries on a regular basis. Reports of financial activity that a Trustee provides to the Trust beneficiaries are called Trust accounts. Trustee accounts should include an inventory of the assets held by the Trust, the value of said assets, and the expenses and distributions paid out of the trust. The beneficiaries have the right to inspect the Trustee’s account and to object to any item they deem inappropriate.
4.) A Trustee has a duty to safeguard the Trust assets.
The Trustee is responsible for safeguarding the assets held by the Trust. Take, for example, if the Trustee fails to adequately insure the house and it burns down. The Trustee is responsible and will have to make up for the loss with money from their personal account. Similarly, the Trustee has a duty to invest Trust assets in a reasonable and cautious manner; if they fail to do so and the Trust loses value, the Trustee can be held responsible. In some circumstances, Trustees must secure a surety bond from a bonding agent to ensure that the beneficiaries will be protected if the Trustee fails to adequately protect the Trust assets.
5.) A Trustee has a duty to properly administer the Trust assets.
Trust assets must be kept in the name of the Trust, not in the Trustee’s personal name. The Trustee is not allowed to co-mingle the Trust assets with their own funds. Usually, the Trust will have its own taxpayer identification number assigned by the IRS; the Trustee must file all required income tax returns and pay the tax properly owned by the Trust. The Trustee must provide all beneficiaries with the tax documentation they will need to file their own income tax returns.
The above facts are requirements of every Trustee, there are many more specific tasks involved in serving as Trustee. If you become Trustee for a family member of friend, consult with a Massachusetts elder attorney for help in fulfilling your duties so you can successfully carry out your Trustee responsibilities.