A trustee has a fiduciary duty to the beneficiaries of the trust. This includes handling the duties of trustee with the skill and prudence of a reasonable person. If the trustee breaches his fiduciary duty, the trustee may be held personally liable.
A trustee is also responsible for administering the trust in accordance with the terms of the trust and applicable state laws. See trust law sources.
If the trustee fails to administer the trust for the benefit of the beneficiaries, misappropriates property, makes imprudent investments with trust funds, fails to distribute trust property to beneficiaries, or otherwise fails to perform the duties of a trustee, the trustee may be held liable for any losses arising from the trusteeís actions. See
trustee investment duties. If legal action is brought by a beneficiary against the trustee, the trustee must defend his actions in court. Courts will generally not hold a trustee liable if the trustee acted honestly, reasonably, and in good faith. However, if the trustee used the trust assets for his own benefit, the trustee will be held liable.In addition to liability, trustees need to be aware they can be removed in certain circumstances. If a trustee fails to adequately perform required trustee duties, breaches a fiduciary duty, is unfit to serve or there are other legal reasons to remove the trustee, then a beneficiary, settlor, co-trustee or other interested person may seek a change of trustee. Refer to the Pennyborn.com page on
Can Trustee Be Removed.If you are concerned about trustee liability, being removed from your position as trustee or other potential will and trust disputes by a litigious beneficiary, consult a trusts and estates attorney for guidance in performing your duties.If you want to limit your liability for actions taken as trustee, you may want to request the beneficiaries of the trust sign a waiver, release or similar type of legal document. To learn about the use of these types of forms by trustees, go to
Trust Beneficiary Release.
What Actions Can I Take as Trustee?
The trusteeís powers are outlined in the Declaration of Trust or Trust Agreement. Depending on the specific powers granted to the trustee in the trust document, the trustee may be empowered to deposit checks, pay debts and expenses, sell trust property, make investments with trust funds, initiate or defend legal actions, manage the deceased grantorís business interests, and distribute trust assets to beneficiaries. However, the trustee only has authority to take action regarding property titled in the name of the trustee of the trust. The trustee has no authority to handle property considered part of the decedentís probate estate. See living trust property.Another question that arises during trust administration is who is entitled to receive information about the trust. When changing title to trust assets, opening trust accounts or selling trust property, trustees often provide a
Certificate of Trust Form rather than disclosing the full trust document.Heirs of the deceased settlor and others may also demand information about the trust from the trustee. Before disclosing information about the trust, new trustees should discuss these requests with a lawyer and make sure they understand the parameters for providing information to beneficiaries and other individuals. See
right to information about trust.
What If I Do Not Want to Serve as Trustee?
There are many reasons you may not want to serve as trustee. Being a trustee takes a lot of time. If you are working full time or raising a family, you may not have time to be a trustee. Perhaps you donít like paperwork, arenít good with finances, or have trouble staying organized. Being organized, detail oriented, and having a basic understanding of investments, property, and other financial matters are important skills you will need to perform your duties as trustee.
You may not want to serve as trustee if there is conflict among the heirs, if you know the deceased grantor planned on disinheriting an heir, or you believe there will be a lot of dissatisfied people when the deceased personís property is distributed. If you are uncomfortable being involved in disputes or being assertive, you may find it stressful to serve as trustee.
There is no legal requirement to serve as trustee, even if you are named in the deceased person's trust documents. If you donít want to serve for any reason, you can decline. But you must follow the instructions in the trust for transferring your duties to a successor trustee or having a successor trustee appointed. If you accept appointment as a trustee, you must fulfill all your duties in accordance with applicable laws, even if you find the position challenging.
If you are unable to serve, review the trust document to determine if a successor trustee is named. If no successor trustee is named in the document, it may provide that the current acting trustee is authorized to appoint a new trustee. You may also want to consider having a professional fiduciary serve as trustee. If there is no successor trustee named in the trust document, consult a probate lawyer about having one appointed by the court.
Will I Be Paid For My Work As Trustee?
The original trustee of a living trust is usually the grantor or settlor. Therefore, the original trustee is usually not paid. Some living trust agreements provide that the successor trustee shall not be compensated either because the grantor or settlor named a spouse or close relative as trustee. However, most living trusts provide that a successor trustee shall receive reasonable compensation. For an overview of how a trustee is typically compensated for services, see
fees trustees bill charge.When an attorney, bank, trust company or professional fiduciary serves as trustee, they are also paid for their services. For information on what they charge, see
trust administration fees.The trust agreement should specify whether a successor trustee will be paid by the trust. Review the provisions of the trust document to determine whether the grantor provided for the successor trustee to be compensated. If the living trust does not specify a set rate or amount of compensation, it may be left to the trustee to pay himself a reasonable amount of compensation. All trusts typically allow the trustee to be reimbursed for out of pocket expenses incurred while performing duties for the trust. For more details, go to for successor trustees.
Are Tax Returns Required for Living Trusts?
While the grantor or settlor of a revocable living trust is alive, a separate trust income tax return is not required for the trust because the living trust is taxed under the grantorís social security number with the grantor filing a personal income tax return. A living trust does require a separate income tax return when it becomes irrevocable, which usually occurs upon the grantorís death. After the grantor of the living trust is deceased, the trustee is responsible to file all federal and state tax returns due for the living trust. Preparing tax returns for a trust is complicated. Trustees should consult an accountant or other tax professional for assistance.
Do I Have to Post a Bond to Serve as Trustee?
You may be required to post a bond when you serve as trustee. A surety bond is an insurance policy to protect the trust beneficiaries against the risk of mismanagement of trust assets or other wrongful acts by the trustee.
The trust document will state whether you are required to post bond or whether the grantor has specified no bond shall be required of a trustee. If the terms of the trust require you to post a bond, contact your insurance agent for information on how to purchase a surety bond. See executor bonds.
Trustees Should Always Consult an Attorney
Before taking any actions regarding administration of a trust, beneficiaries, creditors, trust property or heirs of the deceased, consult a licensed attorney regarding your duties as trustee and applicable laws.Copyright 2020 Pennyborn.com. ALL RIGHTS RESERVED.
INFORMATION ON THIS SITE, INCLUDING ARTICLES, ESTATE PLANNING FORMS, AND THE ESTATE PLANNING BLOG, DOES NOT CONSTITUTE LEGAL, FINANCIAL OR TAX ADVICE. Pennyborn.com is not a law firm and is not a substitute for a lawyer. Your use of this site does not create an attorney-client relationship. Information on this site is for educational purposes only and may not be accurate, complete or up to date.
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