Archive | Estate & Trust 101

What Every Trustee (and Beneficiary) Needs to Know About Duties

Part of our Estate & Trust 101 series. Great place to start if all of this trust lingo is a foreign language to you (as it is to most people).

It seems the terms “fiduciary” and “fiduciaries” are everywhere these days.  Many folks selling services claim to be your fiduciary.  This suggests they hold themselves to some higher (but undefined) standard that puts your best interests first.

Why is it done?  A desire to get you to trust the person or thing being marketed.  Why use the word “fiduciary”?  The term itself comes from the trust world.  Trustees are the original fiduciaries.  Quite literally.

What is a fiduciary?  A quick visit to the Merriam-Webster Dictionary tells us:

Fiduciary (n) – In law, a person in a position of authority whom the law obligates to act solely on behalf of the person he or she represents and in good faith.

Simplified:  Because a trustee is a fiduciary, he must put the beneficiary’s interests before his own.

Trustees may not seek – or even accidentally get – personal benefit from their transactions with the beneficiary or trust assets.  This means that the Trustee is prohibited from using trust assets to benefit himself in any way.

And, the Trustee is subject to a number of important duties and responsibilities.  These duties have been written down over the years, and they have become the law in all states in the United States in one form or another.  They are (Rule in italics; a simplifying comment or two follows each rule):

Duty of Administration:

  • Upon acceptance of a trusteeship, the trustee shall administer the trust in good faith, in accordance with its terms and purposes and the interests of the beneficiaries.
  • The Trustee must follow the grantor’s instructions in the trust agreement and be guided by the grantor’s intent in all decision making.  Good faith=meaning no harm.

Duty of Loyalty:

  • As between a trustee and the beneficiaries, a trustee shall administer the trust solely in the interests of the beneficiaries.
  • The trustee cannot use trust assets for his own benefit (unless the trustee is also a beneficiary, but there are special rules on that).  Also, the trustee cannot mix (“commingle”) trust assets with his own.

Duty of Impartiality:

  • If a trust has two or more beneficiaries, the trustee shall act impartially in administering the trust property, giving due regard to the beneficiaries’ respective interests.
  • The trustee can’t favor one beneficiary over another unless the trust agreement directly permits. For example, many older trusts state that the current beneficiary is entitled to all of the trust’s income every year. I have, as trustee, had multiple conversations explaining that we couldn’t invest the trust assets only in fixed-income assets to maximize the income (i.e., their cash flow).  Doing that, instead of balancing the investments between growth and income, might leave little to the next beneficiaries.  That would favor the current beneficiaries and breach the duty of impartiality.

Duty of Prudence:

  • A trustee shall administer the trust as a prudent person would, by considering the purposes, terms, distribution requirements and other circumstances of the trust. In satisfying this standard, the trustee shall exercise reasonable care, skill and caution.
  • This is often referred to in shorthand as the “prudent investor rule”:  investing for reasonable growth with minimum risk.

Duty to Inform and Account:

  • The trustee shall keep beneficiaries of the trust reasonably informed of the trust and its administration.
  • The trustee must keep accurate trust accounting records, file tax returns and report to the beneficiaries at least annually. This is probably the most important duty.  Because, without it, the beneficiaries would have no idea whether the trustee is living up to his other duties.

Sound like a lot of work?  It’s not easy being a trustee.

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How to Build a Trust

Part of our Estate & Trust 101 series. Great place to start if all of this trust lingo is a foreign language to you (as it is to most people).
Here’s how to create a trust (preheat the oven to 350):

  1. A grantor comes to an agreement with a trustee about holding property or assets for someone else’s benefit; and
  2. The grantor gives those assets to the trustee.
  3. Serve & enjoy.

Said another way, there must be:  (1) an agreement as to the terms of the trust; and (2) a transfer of assets to the trustee, before a Trust comes into existence.

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Trust & Estate Planning Glossary

Glossary

We thought it might be helpful to have a handy list of words and phrases frequently used in discussing trusts, trustees, beneficiaries and wealth transfer planning.

It’ll be an organic list – growing and expanding as needed to add things that are frequently asked. Speaking of : Have a question about something that’s not on the list?  Please, Contact Us!

 

Check out the Glossary here. It’s also in the menu bar above.

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Oakstone Law
1415 Panther Lane, Suite 439
Naples, Florida 34109
Tel: 239.206.3454