WHAT IS A TRUSTEE?

A trustee is a person or a licensed corporation that owes a special duty of care to the beneficiaries of a trust.

WHAT IS A COTRUSTEE?

A cotrustee is a person or corporate fiduciary that is currently serving as trustee with one or more other trustees.

WHAT IS A SUCCESSOR TRUSTEE?

A successor trustee is a trustee who takes over for a previous trustee when that trustee is no longer able to perform the duties of a trustee, for whatever reason. Usually the trust maker names successor trustees in the trust agreement. It is common to have two or three successor trustees acting at once. Theoretically, there is no limit to the number of successor trustees you can have acting at the same time but, as a practical matter, having too many can be costly and cumbersome.

WHAT IS A TRUST PROTECTOR?

A trust protector is a person or corporation that, depending on the terms of the trust, has authority to oversee the trustees, to change provisions of the trust, to veto acts of the trustees, and, in general, to ensure that the trust is being properly administered.

WHAT DOES THE TERM “FIDUCIARY” MEAN?

The word “fiduciary” comes from Roman law and is derived from the same word as are “fidelity” and “faith.” A person who is a fiduciary has been put in a position requiring him or her to be faithful and trustworthy. A trustee is the ideal example of a fiduciary. When a trustee controls trust assets, he or she must be faithful to the beneficiaries by performing the trustee’s duties in their best interests, and in accordance with fiduciary law, as he or she carries out the terms of the trust agreement.

WHAT IS THE PRIMARY FUNCTION OF MY TRUSTEES?

The primary job of your trustees is to follow your instructions. That is why the instructions in your trust must be clear and well written. If your instructions are sparse, incomplete, or ambiguous, your trustees will have to rely on their own judgment. The result may be that what you intended may not happen, defeating the main purpose of your trust.

CAN THE SUCCESSOR TRUSTEE THAT I APPOINT IN MY REVOCABLE LIVING TRUST CONTROL HOW MY ASSETS WILL BE DISTRIBUTED?

Your revocable living trust should contain very specific instructions as to how your trust assets will be distributed. Your trustee is merely an agent whom you appoint and who has the duty to carry out your instructions. In law, the agent is knows as a fiduciary. In essence, a fiduciary is a person who is entrusted with the assets of another and who is obligated to carry out the direction set forth by the person entrusting those assets. Fiduciaries cannot derive personal benefit from assets entrusted to them. Therefore, the instructions set forth in your revocable living trust must be followed by your trustee and cannot be changed by your trustee. Any deviation from your instructions will subject your trustee to personal legal liability.

DOES MY TRUSTEE HAVE TO FILE AN ACCOUNTING FROM TIME TO TIME WITH MY BENEFICIARIES?

In most states, an account to trust beneficiaries is required periodically. Regardless of state law, it is a good idea for the trust agreement to provide for an accounting to beneficiaries.

CAN THE TRUSTEE, ACTING IN HIS OR HER CAPACITY AS TRUSTEE, AMEND MY TRUST?

In general, no. Under ordinary circumstances, your trustee cannot amend the trust but must work with what he or she has. Under extraordinary circumstances, it might be necessary for the trustee to bring an action in the appropriate court asking to reform the trust in some pertinent aspect to correct an obvious oversight or omission which would defeat the intent of the trust maker.

CAN YOU SUMMARIZE THE GENERAL DUTIES OF TRUSTEES?

Each state has statutes that detail the powers and duties of a trustee in carrying out the management of the trust estate. It may be necessary for the trustee to seek professional management or investment advice if such expertise is not within the trustee’s experience. Some of the general duties of a trustee include:

• Preparing a complete inventory and valuation of the trust assets
• Obtaining a federal tax number from the IRS
• Paying applicable expenses (medical, funeral, etc.) and taxes (federal estate tax, if applicable, and inheritance tax)
• Dividing and allocating assets to the subtrusts created in the trust if required by the terms of the trust
• Distributing assets according to the directions of the trust
• Preparing accountings as may be required

CAN MY TRUSTEE DELEGATE SOME OF HIS OR HER DUTIES TO OTHERS OR APPOINT A TEMPORARY OR SUBSTITUTE TRUSTEE?

Your trustee can do these things if the trust agreement authorized them.

DO MY TRUSTEES PUT MY TRUST PROPERTY IN THEIR INDIVIDUAL NAMES?

Trustees do not have equitable or real title to your property; they have legal title in accordance with their responsibility of prudently managing your property for the benefit of your trust’s beneficiaries. That is why they hold property in their name as trustees rather than individually.

CAN MY TRUSTEES APPROPRIATE MY PROPERTY FOR THEIR OWN USE IF THEY ARE NOT BENEFICIARIES OF MY TRUST?

Trustees are charged with the highest duty and responsibility imposed by law in carrying out their functions. They are absolutely prohibited under the law from using trust assets or income for their personal use, enjoyment, or benefit.

HOW DOES THE LAW MEASURE THE PERFORMANCE OF TRUSTEES?

Each state has statutory guidelines governing a trustee’s responsibilities, and these guidelines vary from state to state. Recently, some states have adopted the prudent investor rule, a model rule requiring that the trustee use reasonable care, skill, and caution in investing and managing trust assets. The investment decisions and actions of the trustee are judged in terms of the trustee’s reasonable business judgment regarding the expected effect on the portfolio of investments as a whole given the facts and circumstances existing at the time of the decision or action. It is important to note that the prudent investor rule is a test of the trustee’s conduct and not of the resulting performance of the investments. Under the prudent investor rule, the trustee has certain duties. The trustee has the duty to review the portfolio assets at the time he or she receives control of the trust assets. The trustee has the duty to diversify the investments of the portfolio unless it is reasonably believed that diversification would not be in the best interests of the beneficiaries. In exercising his or her investment powers and duties, the trustee must pursue an investment strategy that considers both the ability of the investments to produce income and the safety and preservation of capital. Although the laws that govern the responsibilities and conduct of trustees are precise, they simply boil down to using common sense and good judgment. In many cases, that will mean consulting a professional advisor for guidance. Making your chosen trustees aware of what responsibilities lie ahead is a good first step toward achieving proper administration of your trust property when you are no longer able to do so due to your incapacity or death.

WHO LOOKS OVER THE TRUSTEE’S SHOULDER?

As with any trust, the trustee of a revocable living trust has a legal duty to do two things: to follow the rules set down by the trust maker and to act in the best interests of the beneficiaries. In normal circumstances there will not be anyone looking over the trustee’s shoulder. And this is what most people want—that the trust operate or distribute after they are gone with no outside interference. If you have an unusual situation in which a successor trustee does not follow the rules or does not act in the best interests of the beneficiaries, anyone hurt by that trustee’s actions can ask the local court with jurisdiction over estates and trusts to review what the trustee has done.

WHAT IF MY TRUSTEES MAKE MISTAKES AND LOSE MY FUNDS?

If they make mistakes which are proved to be costly to the trust or its beneficiaries, trustees are liable to the beneficiaries for those mistakes. However, whether or not the funds are collectible is another matter.

HOW CAN I PROTECT MY BENEFICIARIES FROM THE MISTAKES OF A TRUSTEE?

Name a corporate fiduciary as a cotrustee. By law, corporate fiduciaries are liable for their mistakes and, as such, can be collected against. They must post all of their assets as their bond for the faithful performance of their duties.