Every trustee has duties to all the trust's beneficiaries. A breach of one or more of these duties can get you equitable relief or damages.
If you would like to look more in depth to your Trustee's duties, check out our article, "20 ways your Trustee can be breaching their fiduciary duties." Or look at part of our list of the most commonly breached trustee duties that become the subject of trust litigation.
Trustee's Duty to Administer Trust According to Its Terms
The trustee must administer the trust according to the terms of the trust. That means the trustee does not get to make up their own rules. Instead, the trustee must carry out the terms of the trust as recorded.
Common examples of trustees departing from the trust's terms include trustees who want to keep trust property in the trust instead of distributing it. Or trustees who have a wild idea about how they will increase the value of trust assets before they distribute them. That means trustees claimed they received verbal instructions from the settlor before death.
If your trustee fails to administer the trust according to its terms, they have breached their fiduciary duties.
Trustee's Duty of Loyalty
Your trustee must administer the trust solely in the interest of the trust beneficiaries. If your trustee uses other considerations to administer the trust, then the trustee is breaching its fiduciary duty to you.
Common examples of trustees breaching their duty of loyalty include
- The trustee who wants to extend trust administration to increase their fees,
- Trustees who attempt to take some portion of the trust for themselves that they are not entitled to, and
- Trustees who make gifts of trust assets to people who are not in the trust or beneficiaries.
Trustees who breach their duty of loyalty often claim that their actions are justified by some verbal instruction from the settlor before they die or from one of the beneficiaries. That is almost always utter nonsense. Even if it were true, that doesn't relieve the trustee of their duty of loyalty to the beneficiaries.
Suppose your trustee truthfully claims that before the settlor died, they said they wanted to make a gift of cash to somebody who isn't a trust beneficiary. Even if it's entirely true, the trust terms became irrevocable when the settler died. For that reason, the trustee must follow the terms of the trust as it appears in writing.
That means if it is not in the trust, it is not the trustee's responsibility since the settlor never wrote it in the trust document.
The trustee does not get to make a gift simply because there was some verbal instruction. To make that gift is a breach of the trust terms and the duty of loyalty to the trust beneficiaries.
If your trustee is not acting in the best interest of the trust beneficiaries, they have breached their fiduciary duty.
Trustee's Duty to Deal Impartially with Multiple Beneficiaries
If a trust has two or more beneficiaries, then the trustee must deal impartially with them. The trustee must act impartially with the beneficiary when investing and managing the trust property. The trustee must take into account the differing interest of the trust beneficiaries.
The real question you should be asking yourself is whether the trustee has taken your best interest into account when deciding what to do. A shorthand way of thinking about this is that if the trustee shows favoritism to one beneficiary over another, they have breached their fiduciary duty. There are many ways this can play out depending upon the terms of the trust.
A typical example of a beneficiary being treated differently is when the trust calls for outright distributions, and one beneficiary receives a distribution. At the same time, the trustee retains property in the trust that would otherwise go to the other beneficiaries.
Here are four examples of a trustee taking advantage of a beneficiary.
- When trust assets are managed for some extended period
- The beneficiaries have different ages
- They have other investment goals
- Different risk tolerances
The trustee's failure to segregate the assets into different shares for the different beneficiaries or, in some other manner, invest the trust property in meeting the goals of each beneficiary is a breach of their fiduciary duty.
Trustee's Duty to Avoid Conflicts of Interest
The trustee has a duty not to use or deal with trust property for their profit or any other purpose unconnected with the trust. The trustee may not participate in any transaction in which the trustee has an interest against the best interests of the trust beneficiaries.
That means that in practice, the trustee cannot use trust property to benefit themself.
For example, the trustee may not lend her trust cash to purchase real estate. That's an example of using trust property for the trustee's profit.
Occasionally, a trustee will use trust property for what they consider a charitable purpose. In truth, that charitable purpose usually involves helping one of their family members. So, for example, if a trustee wanted to allow their child to live in a trust-owned house without paying rent. Then the permitted trustee overrode their fiduciary duty.
That is a conflict of interest they are obligated to avoid.
Trustee Requiring Beneficiary to Relieve Trustee of Liability as Condition for Making a Distribution
The trustee may not require a trust beneficiary to relieve the trustee of liability as a condition for making a distribution to the beneficiary if the trust's terms require the distribution. In other words, you can't be made to give up your right to sue the trustee as a condition of the trustee distributing your share of the trust to you. There is a big difference between a trustee who requests a waiver of liability and one who demands a release of liability before making a distribution. A disclaimer of liability means you are giving up your right to sue. A trustee can request a liability waiver so they don't have to go through the time and expense of filing an account with the probate court.
Trustees acting in good faith provide a copy of their account to the trust beneficiary, allowing the beneficiaries adequate time to review the statement. And ask any questions they may have about what has been reported in the account. If this sounds like your situation, then your trustee most likely isn't doing anything wrong by requesting a liability waiver.
You might think of this as a shakedown, and you're in a good reason for thinking so. That is very different from a trustee who insists they will not distribute any trust property to you without you signing a liability waiver. That is entirely improper. A trustee who does not share financial information with you and does not allow you to ask accounting questions might as well be waving a red flag.
If your trustee requires a waiver of liability before making your trust distribution, then your trustee has breached their fiduciary duty to you.
Trustee's Duty to Not Knowingly Become a Trustee of Another Trust with an Adverse Interest
Suppose the trustee takes on an adverse claim. In that case, the trustee must eliminate the conflict of interest or resign as trustee when the contest is discovered. The trustee of one trust has a duty not to knowingly become a trustee of another trust with an adverse interest to the beneficiaries of the first trust.
That rarely comes into play except in one particular situation. Let's say a couple has created what's commonly known as an A-B trust. Usually, the surviving member of the couple becomes the successor trustee when their spouse dies. The surviving spouse has a duty under the terms of the trust to allocate trust property to the two trusts. That doesn't always happen. Worse, it's not uncommon for the surviving spouse to put all the property into the A trust (the trust that should hold only the surviving spouse's share of the property). And nothing in the B trust (the trust that should keep the deceased spouse's share of the property.)
When the beneficiaries of these two trusts are not identical, the beneficiaries of Trust B have an adverse interest in the heirs or beneficiaries of Trust A.
Suppose the same person is the trustee of both trusts. They are acting as trustees of a trust with an adverse interest.
That is an uncommon scenario but not an unknown scenario. When it does arise, it almost always happens in blended families. If this is your situation, you must discuss it with the trust litigation attorney.
Trustee's Duty to Control and Preserve Trust Property
The trustee must take reasonable steps under the circumstances to take and keep control of and preserve the trust property. This fiduciary duty is just as straightforward as it sounds. Yet, any number of trustees failed to carry it out.
Reasonableness, of course, depends on the circumstances a trustee encounters when they take over the trust administration. A trustee must go through administrative steps to take control of trust property. For example, a trustee either needs to record an affidavit of the succession of trustee or record a new deed to show that they are the trustee who holds title to a parcel of real estate. Similarly, a trustee will need to go to a bank to sign new account documents to take control of an existing bank account owned by the trust.
Unfortunately, not every trustee exercises even the minimal effort necessary to take control of trust property. In most situations, it requires only a tiny amount of work for a trustee to take control over trust property. A trustee who fails to control a bank account may find that it has been transferred to the state because the account has been dormant too long. A trustee who fails to exercise control over real estate may find that squatters occupying the property have vandalized or is even the subject of an adverse possession lawsuit.
Common sense will tell you what a trustee should be doing. Once the trustee has taken control of the trust property, they must act reasonably to preserve it. For assets like bank accounts, almost no work is required. The trustee must receive the monthly statements to ensure the funds remain in the account.
Suppose the trust contains stocks, bonds, or mutual funds. In that case, the trustee will have to decide whether the current investment should remain in place or be sold because of the risk inherent in the asset and the proper way to reinvest those assets. For trust-owned real estate, the trustee has to take more active measures. Real estate needs to be insured, real estate taxes need to be paid, and the real estate itself has to be managed.
Trustee's Duty to Make Trust Property Productive
The trustee must make the trust property productive under the circumstances and in furtherance of the purposes of the trust. Simply put, a trustee must examine why the settlor created the trust. For example, suppose the trust calls for outright distribution upon the settlor's death. In that case, the trustee may do very little to make the trust property productive because their primary responsibility is to transfer the property out of the trust to the beneficiaries.
Contrast that situation with the trustee knowing trust property will have to be managed for years. Consider that the trust contains an unoccupied single-family residence. In that case, the trustee must decide how to make that property productive. The trustee could rent the property and collect rent. The trustee could sell the property and reinvest the net proceeds of the sale. What the trustee can't do is allow the house to remain unoccupied.
Trustee's Duty to Keep Separate and Identified Trust Property
The trustee must keep the trust property separate from other property not owned by the trust and see that the trust property is designated as property of the trust. That means a trustee must be diligent in keeping trust property titled in the name of the trust. While also ensuring the trust property does not become co-mingled with any other property.
Suppose the trust owns an apartment building. The trustee collects rent monthly from the tenants and pays expenses related to the apartment building. The trustee should be depositing the rent in a trust-owned bank account and paying the costs from that trust-owned bank account. Suppose the trustee collects rent and deposits it in their bank account. They have breached their fiduciary duty by failing to keep trust property separate from their private property.
Trustee's Duty Not to Delegate Trustee's Duties
The trustee has a fiduciary duty to trust beneficiaries. The trustee has a responsibility not to delegate the performance of actions that the trustee can reasonably perform. And may not transfer the office of a trustee to another person nor delegate the entire administration of the trust to a co-trustee or other person. That does not require the trustee to perform every action for the benefit of the trust on their own. For example, if the trust owns a house that needs to be painted, then the trustee is not required to paint the house themself. The trustee is responsible for obtaining a reasonable price for the painter, ensuring the work is done and ensuring the work is of suitable quality.
The trustee will remain responsible for carefully selecting who will perform the investment and management of trust assets. The one notable exception to this rule is that for the acquisition and management of trust assets, the trustee may delegate investment and management as is prudent under the circumstances. That way, it establishes the scope and terms of the duties they've charged—and periodically reviews the investment performance and management of trust assets.
Trustee's Duty to Use Special Skills
There is a problem concerning tax-sensitive transactions. The trustee must apply the full extent of the trustee skills. Suppose the settlor, selecting the trustee, has relied on the trustee's representation of having special skills. In that case, the trustee is held to the skills' standards. That means that a trustee who claims to have substantial training, experience, or education is kept to a higher standard than the average person serving as trustee. For example, consider that the trustee is a certified public accountant. In that case, there is a reasonable expectation that they have a heightened degree of sophistication for tax-sensitive matters. Suppose during their tenure as a trustee. In that case, the trustee is held to a higher standard than the average person. That can prove a breach of fiduciary duty due to the higher standard.
Trustee's Duty to Comply with the Prudent Investor Rule
The trustee shall invest and manage trust assets as a prudent investor would by considering the trust's purposes, terms, distribution requirements, and other circumstances. In satisfying this standard, the trustee shall exercise reasonable care, skill, and caution.
Commonly referred to as the prudent investor rule. It requires a trustee to make investments in a way that is appropriate for the trust beneficiaries. It prohibits the trustee from investing trust assets using their standards.
The prudent investor rule is fundamental, where trust assets are held in the trust for an extended period. That can happen because the trust requires assets to be held or because the trustee has failed to be diligent in carrying out the terms of the trust. Trust beneficiaries who have had their share of the trust held in trust for an extended time should examine whether the trustee has appropriately invested and managed trust assets.
Trustee's Duty to Account to Trust Beneficiaries
The trustee shall account at least annually. The account should happen at the trust's termination. Upon a change of trustee, each beneficiary to whom income or principal is required or authorized in the trustee's discretion is currently distributed. Each event triggers the trustee's duty to account for the beneficiaries. The trust account allows a beneficiary to understand what has occurred with trust assets and income during the period of the account. Reviewing the report is how you, as a beneficiary, will decide whether the trustee has acted appropriately or inappropriately.