General Overview

When dealing with trust issues always look at the written terms of the trust, Court orders, if any, pertaining to your particular case, applicable statutes, and relevant Court opinions from other cases.

The trustee primarily administers the trust by its written terms, which express the trustor's (Grantor's) intent. This can be a complicated issue. The rule most often stated is that the trustor's intent is to be followed, as expressed in the trust, and that, generally, evidence outside the plain meaning of the words used in the trust cannot be used to determine the trustor's intent, unless the words used in the trust are ambiguous and susceptible to more than one interpretation. However, more and more the Courts are allowing people to present outside evidence of the trustor's intent even if the language used in the trust is clear and cannot be interpreted more than one way. So the bottom line is that you should consider whether the trust expresses what the trustor would have wanted, and, if it does not, is there sufficient other evidence to prove what the trustor intended? I am not suggesting that in these circumstances the trustee decide what he or she believes the trustor intended. To resolve issues of this sort you petition the Court for instructions and an order. Do not determine issues of this type on your own.

Trustee Standard of Care

Trustee standard of care also is a constantly evolving area of law. Generally, Courts construe the trustee's standard to be very high. Initially, the beneficiary does have the right, in most, but not necessarily all circumstances, to demand that the trustee disclose trust-related information. At that point, if the beneficiary believes that an impropriety has occurred, the beneficiary must, to the extent possible, expressly state the nature of the dispute or impropriety. The Courts are not uniform in determining the extent to which the beneficiary must initially present, if at all, evidence of the trustee's alleged wrongdoing. Assuming that the beneficiary has stated a potentially valid claim, it is then the burden of the trustee to refute that claim with sufficient evidence. Assuming that the trustee can present sufficient evidence tending to refute the claimed impropriety, the beneficiary will want to present evidence establishing trustee wrongdoing.

The trustee should administer the trust with the reasonable care, skill, and caution that a prudent person would under the current circumstances to accomplish the purposes of the trust as determined from the trust wording. A trustee who has special skills is required to use those skills.

Delegation of Responsibilities

Generally, the trustee should not delegate responsibilities that the trustee can reasonably be expected to perform. However, in practice it is not uncommon for trustees to delegate certain responsibilities, and, by statute, in appropriate circumstances a trustee can delegate specific duties. Some of the responsibilities that might be delegated are investment, tax, legal and accounting in nature. The trustee must prudently select which agents to use, and must oversee those agents.

Accountings

In some circumstances the trustee will have a duty to provide trust accounting and other information to the beneficiaries.

The general rule is that the trustee is required to keep the beneficiaries reasonably informed about the trust and its administration. However, there are important exceptions. Upon reasonable request by a beneficiary, the trustee must provide the beneficiary with a report of the information relating to the assets, liabilities, receipts, and disbursements of the trust, the acts of the trustee, and the particular terms of the trust that are relevant to the beneficiary's interest. Probate Court usually requires the trustee to provide an accounting at least annually, at termination of the trust, and upon a change of trustee to each beneficiary to whom current distribution of income or principal is authorized. However, the accounting or information might not be required if waived by the terms of the trust or the beneficiary, or the trust in question is revocable.

The trustee must maintain proper accounts. Accounting requirements are beyond the scope of this discussion - for example, generally, the records might be required to differentiate between potentially confusing accounting aspects such as income and principal allocations.

Accountings can be complicated. However, I can assure you that maintaining proper accounting and backup documentation is extremely important.

A jurisdictional probate court may also require the trustee to provide specific notices and information to the beneficiaries when a portion of a revocable trust becomes irrevocable, or there is a change of trustee of an irrevocable trust. You should consult an attorney about these notices.

Confidentiality

A trustee has a duty of confidentiality. The trustee has a general duty, but not in all circumstances, not to disclose to a third person information about the trust and the beneficiaries. However, the trustee might need to disclose certain information to properly administer the trust.

Fiduciary Duty

A trustee must not put his or her interests above those of the trust or the beneficiaries, and should avoid conflicts of interest with the trust and the beneficiaries. This can be a difficult area because it is absolutely permissible and common for a trustee also to be one of several beneficiaries. Although not a legal requirement, it has been my experience that a trustee should try to avoid even the appearance of self-dealing, or that he or she has placed his or her interests above those of the trust or beneficiaries. If potential conflicts exist, often disputes can be avoided by obtaining prior beneficiary or Court approval of the action to be taken.

Impartiality

The trustee should act impartially between the competing interests of the various beneficiaries. Unless the trust specifies otherwise, the trustee should not favor a particular beneficiary or class of beneficiaries.

Discretionary Powers

A trust will typically contain provisions that give the trustee discretionary powers, that is, the power to use his or her own judgment in specific circumstances. The amount of discretion is strictly construed from the language in the trust document and the intent of the trustor. Be cautious, however - even if the trust provides sole, absolute or uncontrolled discretion, Courts still require the trustee to act within the fiduciary standards and not in bad faith or in disregard of the purposes of the trust. In other words, if the issue of a trustee's discretion is presented to the Court, the Judge will make a determination based on his or her own evaluation.

Unless limited by the terms of the trust, the trustee also has other statutory powers.

You should review the powers and limitations specified in the trust document, and also the powers listed in your jurisdiction's Probate Code. One area in which a trustee might be required to use discretion relates to determining the appropriate amount of income or principal to distribute to a beneficiary. For example, should a trustee give consideration to the beneficiary's outside financial resources when the trust is silent on that issue? There are differing opinions. However, some Courts have suggested that, if the trust does not state otherwise, the trustee should consider the beneficiary's outside resources.

Co-trustees

Unless the trust provides otherwise, cotrustees must act unanimously. However, the trust can allocate powers unequally between co-trustees. And, in limited circumstances if a co-trustee is unavailable, the remaining co-trustees may act. If the co-trustees are stalemated on a decision, one or more of the co-trustees can file a Court petition for instructions. A co-trustee can be liable for a breach of duty by a co-trustee. Thus, if a co-trustee takes an action that the other co-trustee believes is a breach of duty, the non-breaching co-trustee should consider filing a Court petition with the Probate Court.

Hostility between co-trustees can be a ground for removal of a trustee. In some circumstances, a co-trustee might be allowed to resign if there are disputes with the other co-trustee; however, if the resignation allows the other co-trustee to commit an anticipated breach, the resignation itself could be considered a breach of duty to protect the trust.

Investments and management

The trustee has the duty to invest trust property for the benefit of the beneficiaries, subject to restrictions or limitations stated in the trust. The trustee's investment powers are provided by the terms of the trust. If not derived from the trust, the investment powers are also derived by statute, case law and the factual circumstances. Generally, the trustee has the duty to make trust assets economically productive.

The trustee is subject to the Uniform Prudent Investor Act, unless the trust provides for a greater or lesser standard of care. The trustee should carefully read the trust terms and the Uniform Prudent Investor Act.

A trustee must invest and manage the trust assets as a prudent investor would, by considering the purposes, terms, distribution requirements, and other circumstances of the trust. The trustee must exercise reasonable care, skill, and caution. A trustee's investment and management decisions relating to individual assets and courses of action are evaluated in the context of the trust's portfolio as a whole and as a part of an overall investment strategy reasonably suited to the trust's risk and return objectives.

A jurisdictional probate court may require the trustee to consider such matters as economic conditions, inflation or deflation, tax consequences, the role of each investment or action within the overall trust portfolio, the expected rate of return from income and appreciation, other financial resources of the beneficiaries known to the trustee, needs for liquidity, regularity of income, preservation and appreciation of principal, and asset special value or relationship to the purpose of the trust or the beneficiaries.

The trustee has a duty to locate and take possession of the trust assets, and develop an investment strategy suited to the purpose of the trust.

Unless the trust states otherwise, the trustee has a duty to invest trust property, preserve it, and make it productive.

Unless the trust states otherwise, the trustee has a duty to diversify the trust investments unless, under the circumstances, it is prudent not to do so.

The trustee must consider the interests and needs of all beneficiaries, income and remainder, when making investment decisions.

The beneficiaries may have conflicting interests. When two or more income beneficiaries have different personal income tax brackets, generally the trustee should strike a balance between them when determining how much to invest in certain assets. However, the trustee might be allowed to prefer one class of beneficiaries over another if the trust terms direct this can be a difficult area and cause litigation concerns.

Subject to the terms and intent of the trust, the trustee has a duty to make the trust property as productive as possible under the circumstances. Under the Uniform Prudent Investor Act, an asset may be productive either by producing income, or by appreciating in value.

A trustee has the authority to make investment decisions as provided by the intent of the trust, as provided by statute, and as required by the trustee's legal standards of care, the interests of the beneficiaries, and the Prudent Investor Rule.

Other Issues

Certain transfers in trusts and Wills may be unlawful in a particular jurisdiction, such as certain transfers of assets to attorneys, caregivers, fiduciaries and other non-family members.