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By: Scott Grossman on March 19th, 2024

What Does a Trustee Do?

Trustee legal obligations

Being a trustee comes with legal obligations that every trustee must understand and fulfill. These obligations form the foundation of a trustee’s role and ensure proper management and protection of trust assets. This article will unravel the complexities surrounding trustee legal obligations, fiduciary, also known as trustee duties to provide a comprehensive guide for trustees.

Understanding the role of a trustee

Before delving into the specific legal obligations, it is essential to understand the role of a trustee clearly. A trustee is an individual or entity appointed to manage and administer a trust on behalf of the beneficiaries. They have a fiduciary duty to act in the trust’s and its beneficiaries’ best interests. This duty requires trustees to exercise high care, loyalty, and prudence.

Essential trustee duties

As a trustee, you have several responsibilities crucial to the trust’s proper functioning. These responsibilities ensure transparency, accountability, and the protection of the trust’s assets. Below are some of the essential trustee responsibilities:

  • Acting in the best interests of the beneficiaries

One of the primary responsibilities of a trustee is to act in the best interests of the beneficiaries. That means making decisions that promote the welfare and financial well-being of the beneficiaries. Trustees should always prioritize the needs and goals of the beneficiaries when managing and distributing trust assets.

  • Managing trust assets diligently

A trustee is entrusted with managing and preserving the trust’s assets. Trustees must handle the assets with care, skill, and diligence. They should ensure the proper investment, maintenance, and documentation of the trust assets. Trustees must also keep accurate records of all transactions and provide regular reports to the beneficiaries.

  • Avoiding conflicts of interest

Trustees must avoid any conflicts of interest that could compromise their ability to act impartially and in the best interests of the beneficiaries. That includes refraining from any self-dealing or transactions that personally benefit the trustee at the expense of the trust or beneficiaries. Trustees should prioritize the trust’s interests above their own.

Fiduciary duties explained

Now that we have covered the essential responsibilities of a trustee let’s delve deeper into the specific duties that trustees must fulfill:

  • Duty of loyalty

The duty of loyalty requires trustees to act solely in the best interests of the beneficiaries. Trustees should set aside personal interests and make decisions aligning with the beneficiaries’ needs and goals. This duty also prohibits trustees from using trust assets for their benefit or engaging in any transactions that could result in a conflict of interest.

  • Duty of care

The duty of care obligates trustees to exercise reasonable care, skill, and prudence in managing the trust assets. Trustees should make informed decisions, seek professional advice when necessary, and stay updated on financial and legal matters that could impact the trust. This duty also includes maintaining accurate records, monitoring investments, and reviewing the trust’s performance regularly.

  • Duty to inform and communicate

Trustees must inform the beneficiaries about the trust’s administration, finances, and significant developments. This duty requires regular and transparent communication with the beneficiaries, providing them with timely and accurate information. Trustees should also respond to beneficiaries’ inquiries and address any concerns they may have regarding the trust.

  • Duty to invest prudently

Trustees must prudently invest the trust assets to preserve and grow their value. This duty involves diversifying investments, considering risk and return objectives, and following prudent investor rules. Trustees should exercise caution and diligence when making investment decisions, seeking to minimize risk while maximizing beneficiary returns.

  • Duty to maintain confidentiality

Trustees must maintain the confidentiality of trust-related information unless disclosure is required by law or authorized by the beneficiaries. This duty ensures the privacy and protection of sensitive information, safeguarding the interests and well-being of the beneficiaries. Trustees should exercise caution when sharing information and take necessary measures to prevent unauthorized access or disclosure.

Fiduciary Duties

Being a trustee is a significant responsibility that requires a thorough understanding of legal obligations, trustee responsibilities, and fiduciary duties. By fulfilling these trustee duties, trustees can ensure the proper management and protection of trust assets while acting in the best interests of the beneficiaries.  

The trustee could face personal liability if failure to carry out these duties has negative financial repercussions on the estate assets.

If you would like more information about fiduciary or trustee duties, check out our articles “Breach of Fiduciary Duty” and “20 Ways Your Trustee Can be Breaching Their Fiduciary Duties” to understand the nuances of what a breaching fiduciary duty means.

Consequences of Breaching a Fiduciary Duty

Further, when trustees breach their duties, they may face various consequences. This includes:

  1. Personal Liability: The trustee may be liable for any losses the trust beneficiaries suffer due to the breach. 
  2. Removal from Position: Beneficiaries may be able to have the trustee removed from their position and replaced with another trustee. 
  3. Monetary and Non-Monetary Damages: A breach of trust can lead to financial or non-monetary damages for the beneficiaries. 
  4. Legal Action: The trustee could face legal action, court expenses, and attorney fees. 

Some common examples of trustee breaches of duty include self-dealing, negligence, imprudent investments, and failure to distribute trust income. Trustees need to fulfill their responsibilities and act in the best interests of the beneficiaries to avoid these consequences. 

What is the next phase if your trustee breaches their fiduciary duty?

If a trustee has breached their fiduciary duty in California, the affected party can take the following steps:

  1. Seek Legal Advice: You should consult with an experienced attorney who specializes in trust and estate law to understand your options and the best course of action. 
  2. File a Lawsuit: The affected party may file a lawsuit against the trustee for breach of fiduciary duty. To win the case, they must prove the existence of a fiduciary relationship, the breach of duty, and the harm caused. 
  3. Recover Damages: If the breach is proven, the court may order the trustee to pay compensatory damages to restore any losses suffered by the beneficiaries. In some cases, punitive damages may also be awarded. 
  4. Prevent Further Breaches: The court may issue orders to prevent the trustee from taking further actions that would constitute a breach of their duties. 
  5. Open Communication: The trustee needs to communicate openly and honestly with the beneficiaries and other involved parties to address the breach and work towards a resolution.

In California, a breach of fiduciary duty occurs when a trustee acts in their interest rather than in the best interest of the beneficiaries, violates loyalty or care, or causes harm due to non-disclosure of vital information. The consequences of such breaches can be severe, including legal action, financial penalties, and potential removal from the fiduciary position.

More on your Trustee Breaching their Fiduciary Duty

Need more information on Trust Litigation? To ensure they follow their fiduciary duties, check out our complete overview of California Trust Litigation on our website. If you have more questions about your rights as a Beneficiary and what you should know moving forward. 

If you are still having some trouble, have any more questions, or want to talk to someone about your case, please give us a call or fill out our Get Help Now form below.

It’s best to reach out as soon as possible. The longer you take, the more damage your trust could take. Please call us at (888) 443-6590, and we would be more than happy to see if we can assist you.