Understanding the Role and Duties of a Trustee in California
In this article, we will understand a trustee’s role and duties in California. A trustee of a trust in California is responsible for holding and managing property for the benefit of the trust’s beneficiaries. Trustees have a significant role and duty as a Trustee in California, such as legal responsibilities, and are held to a high standard of care. They are bound by a set of rules called fiduciary duties, meaning that they have the legal duty to act in good faith with integrity, honesty, and the interests of beneficiaries as articulated by the terms of the trust.
What is a Trustee?
Before delving into a Trustee’s specific duties and obligations, it is essential to grasp the foundational concept of a Trustee. In California, a Trustee of a trust is an individual or entity appointed to manage and administer a trust on behalf of its beneficiaries. A trust is a legal arrangement where assets are transferred by the settlor (also commonly referred to as the trustor or grantor) to a Trustee, who holds and manages these assets for the benefit of one or more beneficiaries.
A trustee in California is responsible for holding and managing property to benefit the trust’s beneficiaries. Trustees have significant legal responsibilities and are held to a high standard of care. They are bound by a set of rules called fiduciary duties, meaning that they have the legal duty to act in good faith with integrity, honesty, and the interests of beneficiaries as articulated by the terms of the trust.
The following are some of the most relevant duties and responsibilities of a trustee in California:
Obligation to Administer the Trust, According to Its Terms
Trustees must administer the trust according to its terms or instructions. They must read the trust and its amendments to understand their duties and responsibilities. Conflict may arise when a trustee interprets the settlor’s instructions differently than intended.
Duty to Account to the Beneficiaries
Trustees must account for the trust’s beneficiaries. An accounting of a trust should be completed annually or when there is a change in the trust, upon termination of the trust, or when ordered to do so by the court. While not all beneficiaries are entitled to an accounting, the court may still force the trustee to deliver it anyway.
Duty to Furnish Information to Beneficiaries
Trustees must regularly report to beneficiaries about trust assets, income, and expenses. As part of this duty, accurate records must always be kept.
Duty of Loyalty
Trustees must administer the trust solely in the interest of the beneficiaries. The trustee cannot use the trust for their benefit. Further, evidence of self-dealing or acting on behalf of someone other than the beneficiaries could violate this.
Duty of Impartiality
Trustees must remain impartial when dealing with beneficiaries. If a trustee treats one beneficiary differently from another or gives “preferential treatment” to one beneficiary over another, they are in breach of this duty. Trustees must ensure their actions align with the beneficiaries’ best interests.
Duty to Avoid Conflicts of Interest
Trustees must avoid conflicts of interest that could interfere with their management or administration of a trust. Personal or professional matters that affect the trustee, such as an investment opportunity or strife with a beneficiary, should not affect the trustee’s decisions. Most importantly, trustees may not benefit themselves as a result of having the “position of power” that they occupy.
Duty of Disclosure of Information
Trustees must disclose information to beneficiaries as required by law or the trust instrument.
It is important to note that being a trustee is not a job that can be taken lightly. It is an essential legal title that carries with it a lot of personal and professional liabilities. Trustees are entitled to compensation for their services.
If a beneficiary feels the trustee has not adequately fulfilled their legal responsibilities, they should speak with an attorney about potential legal remedies.
If you would like more information on your trustee’s duties, check out our article, “20 ways your Trustee can be breaching their fiduciary duties,” for a more in-depth examination of trustee’s duties to the trust and what happens when your trustee breaches their fiduciary duty.
Types of Trusts in California
To fully comprehend the duties of a Trustee, it is crucial to be aware of the different types of trusts that exist in California. These may include:
- Revocable Living Trusts: These trusts are created during the settlor’s lifetime and can be modified or revoked at any time. The settlor often acts as the initial trustee.
- Irrevocable Trusts: Unlike revocable trusts, irrevocable trusts cannot be altered or revoked once established. The trustee takes on more significant duties in managing and distributing the assets.
- Testamentary Trusts: These trusts are established through a will and become effective upon the testator’s death. The trustee’s duties and obligations commence at this time.
The Roles and Duties of a Trustee in California
When assuming the role of a Trustee, one becomes a fiduciary. That means they are legally obligated to act in the trust’s and its beneficiaries’ best interests. Additionally, some essential duties of a Trustee in California include:
As a Trustee, managing and preserving the trust’s assets is paramount. That involves making informed investment decisions, staying up-to-date with changing market conditions, and ensuring prudent allocation of financial resources.
Accurate record-keeping is vital to a Trustee’s duties. That may include maintaining financial statements, receipts, communication logs, and other relevant documentation.
A Trustee must maintain open and transparent communication with beneficiaries, informing them about the trust’s activities, assets, and potential distributions.
Accounting and Reporting
Regular accounting and reporting are necessary to give beneficiaries a clear overview of the trust’s financial status. That often involves preparing and distributing financial statements and tax documentation.
Legal and Tax Compliance
A Trustee must adhere to all applicable trustee and tax requirements. That includes filing tax returns, paying necessary taxes, and fulfilling any other legal obligations related to the trust.
Distribution of Assets
When the time comes to distribute assets to beneficiaries, it is the trustee’s responsibility to abide by the terms of the trust and ensure fair and equitable distribution.
The trustee may be required to intervene and facilitate resolution while acting impartially, even in the event of disputes or conflicts among beneficiaries or other stakeholders.
Liabilities and Limitations
The role of a Trustee comes with great responsibility. Additionally, it is essential to understand the initial liabilities and limitations associated with the position. Some important aspects to consider include:
- Standard of Care: Trustees are held to a high standard of care. Moreover, this requires them to prudently and diligently manage the trust’s assets.
- Legal Liability: Trustees can be personally liable—for instance, any losses resulting from a breach of fiduciary duty or negligent actions.
- Professional Guidance: Further, in complex situations or when facing uncertainty, Trustees are encouraged to consult professionals from legal, tax, or financial professionals for guidance.
Is your trustee breaching their fiduciary duties?
Further, if you would still like more information on Trust Litigation and removing a Trustee, check out our complete Overview of California Trust Litigation, available on our website. And if you have more questions about your rights as a Beneficiary and what you should know moving forward.
Need More Information on the Roles and Duties of a Trustee in California?
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