01.25.06
The Duties of a Trustee
One frequent topic of interest to people serving as trustees - and to people whose inheritances are being (mis?) managed by trustees - is exactly what the trustee is obligated to do. The following is a description of the main duties of a trustee of an irrevocable trust in California:
General duty to administer trust appropriately. The Trustee must adminster the trust according to the law and in accordance with the trust document. Good intentions are not enough to insulate a trustee from liability if they do not comply with California law and the trust document. (Probate Code Section 16000).
Duty of loyalty. The trustee must administer the trust solely in the interest of the beneficiaries; the trust cannot be used or managed for the benefit of the trustee. Of course, the trustee may also be a beneficiary in some cases. (Probate Code Section 16002).
Duty of impartiality. If a trust has two or more beneficiaries, the trustee must deal with them impartially - the trustee cannot favor one beneficiary over another - even, or especially, where the trustee is also a beneficiary. (Probate Code Section 16003).
Duty to avoid conflicts of interest. The trustee must avoid conflicts of interest - e.g., situations where the trust’s interests and the trustee’s personal interests (or the trustee’s family’s interests) are opposed to each other. (Probate Code Section 16004).
Duty to control and preserve trust property. The trustee must actively control and preserve the trust property; the trustee cannot passively allow the property to be injured, dissipated, or lost. (Probate Code Section 16006).
Duty to make trust property productive. The trustee must make sure that the trust property is invested wisely, and so that its value is preserved and enhanced. (Probate Code Section 16007).
Duty to separate and identify trust property. The trustee must maintain a clear distinction between trust property and the trustee’s own property, or the property of other people. For example, a trustee must not deposit money belonging to the trust into the trustee’s personal bank account. (Probate Code Section 16009).
Duty to report to beneficiaries. The trustee must keep beneficiaries informed with respect to matters involving the trust. (Probate Code 16060 - 16061.9)
Duty to account to beneficiaries. The trustee must prepare statements regarding the financial transactions of the trust and provide them to current beneficiaries upon request and on at least an annual basis if the accountings are not requested. (Probate Code 16062)
Duty to exercise discretionary powers reasonably. Even where a trust provides that the trustee can exercise “discretion”, the trustee must exercise that discretion in a reasonable way. The trustee cannot act in an arbitrary or unfair fashion, even if the trust says that the trustee’s discretion is “uncontrolled” or “absolute”. (Probate Code 16080)
Jody Burton said,
September 2, 2006 at 12:29 am
-What is considered a ‘reasonable’ period of time to settle an estate and disperse funds to beneficiaries?
-I have read that a trustee should reserve funds from the estate up to three years after the date of death in the event that unforseen claims are made against the estate. Is this true and if so how much should be reserved?
-Also I understand that a trustee is entitled to 10% of the estate and reimbursement of expenses. Is this accurate?
-The beneficiaries have been unrelenting in their requests of updates on my progress in settling our father’s. One ben. has inquired at at last weekly since our father passed away June 2nd 2006; they have recently requested monthly statements. This is interfering a great deal in my ability to get things done. They persist in criticizing simple decisions (which charity was gifted with valueless personal items) and dictating what I, as trustee am to do with items in the estate. How often am I required to report to them? What rights do I have? How can I get them off my back so I can do my job?
Kim Carley said,
April 14, 2007 at 7:09 pm
My sister recently had my mother’s attorney assign her as the sole trustee, when myself, my brother and this sister were prevously serving as co-trustees (my mother is alive but is not competent to manager her own affairs). We had asked her as a co-trustee to provide documentation of trust property she was managing and to provide documents and also all information related to mom’s estate. We found out she had received a $60,000 loan from mom (hand written and not paying interest to our mother) and had also received over $100,000 in 2002 and 2003 that was never repaid to our mother. Because we discovered this, we just asked her for documentation to either list this $100,000 as a loan or a gift so we could do the right thing for our mother and get her affairs in order (As everything was quite a mess and she never filed gift taxes). Our sister refused to provide any information and also refused to provide interest amounts on her current loan (which I needed to file an accurate tax return for mom’s estate). She then went behind our back and had our mother’s attorney make her sole trustee–claiming that we were not allowing her to make decisions on bills and health care, etc.. However, we have it well documented in e-mails that she consistently told us that she did not have time to help with our mother’s affairs because she had three girls at home, and was a single mother, working fulltime and constantly in court with her exhusband fighting over custody issues. Currently, my brother and I no longer communicate with our sister as we feel “betrayed” by her. When becoming the sole trustee, she closed all trust accounts and had moms attorney send a letter stating that we could not have any information or ask for anything that had to do with moms financial or health matters (she also had us removed as health care power of attorney). She has hidden the money in new banks and won’t tell us if mom is getting any care. She will not disclose any of her dealings.
How can this be in the trust’s best interest? Is she not faulting on her fiduciary duty as a trustee? For several years she also collected rental money from our mother’s trust property. She would put this check in her personal account and then several weeks later send our mom a check out of her personal account, sometimes for the lesser amount, stating that she had repairs. When I filed taxes in 2006, she refused to provide receipts to me for this rental trust property. What can my brother and I do at this point? Our mother believes our sister is an angel and we are the enemy! We all three were beneficiaries of our mom’s estate. Hence, she should be communicating everything to use, correct?
Help!
PAULINE HADLEY said,
May 5, 2007 at 7:42 am
I am beneficiary under a family trust, irrevocable, where the trustee does not follow the terms of the trust, will not fund the subtrusts, is gambling witih our property, taking on huge loans 18 mil. to build shopping center that could be questionable at this time. Some of us prefer a long term land lease, or 1031 exchange into something else. He is placing this land into an LLC so we cannot exchange, costing us 24% in tax. His ego to develop our land overshadows common sense. He refuses to follow the terms of the trust, to liquidate. Is this gross negligence or willful misconduct? How can we remove him?
NATALIE said,
June 30, 2007 at 1:06 pm
Jody Burton,
To answer your first question is 1 year depending upon the state law of the Trust.
To answer second question, YES, ITS VERY TRUE, the reason is because what if someone by mistake doesnt get paid or mistake happens that you have to pay a creditor that you were unaware of. Yes, you need to have a reserve for that, you should really be working with an attorney that specializes in Trust Administration because you owe a fiduciary duty to perform under a qualified duty of care and that means if you dont know the answer , you are required to obtain an answer from a qualified attorney .
To answer your third question, you are allowed to be compensated as trustee based upon state statutes for trust administration , do assume 10% and carelessly pay yourself becuase you owe a duty not to self deal. At this deep into the trust administration, you really should already know what to do at this point into your trustee administration and follow what your lawyer tells you what to do. This is a legal question for your lawyer to answer because most trustee compensation in calculated based on percentage of trust estate , and with that being said, the higher the estate is worth , the less the Trustee compensation is paid because Trusts are created for the benefit of the true equitable owner and that is the beneficiary named in the trust.
To answer question relating to beneficiary, you must first understand that you owe them the duty of care to have a family conference, provide inventory of all real and personal property, appraisals on all real property , jewlery and financial accounting to them. The best thing is to tell them that you are preparing everything for them and will provide all the information that they need within a reasonable amount of time. I know that most states require Trustee to give a financial accounting at least 1 year from the date of decease passing. If you go longer then that period , you may be in breach of your fiduciary duty. Remember, the beneficiary hold the power enforce for your removal for breaches of duty in court of law and can sue you personally for any liablility. Its really best to keep them happy and avoid confrontation with them. If you breach your fiduciary duty if can be very costly on you personally. So please, answer your beneficiaries kindly with the best for their benefit. Theres good ways to answer people and not allow frustration to divide the two of you. You have to remember that you can not use the trust funds for your benefit because it could be self dealing. I hope to have helped you have a wonderful day.
NATALIE said,
June 30, 2007 at 1:12 pm
Pauline Hadley,
To answer your question, you must contact your lawyer immediatly so they can place an injunction to stop the Trustee from taking out a loan and purchasing commerical property with your trust fund. First of all, you have to have an attorney that specializes in Trust Administration in Real Estate Law. Trustees can be removed for wrongfully misusing trust funds and other reasons, so you must first notify a very specilized attorney that understands 1) TRUST ADMINISTRATION AND 2) REAL ESTATE LAW COMMERICAL PROPERTY
I wish you luck.
NATALIE said,
June 30, 2007 at 1:21 pm
Kim Carley,
I read your blogg and understand you very clearly.
First of all, you said you were a co-trustee and that you you mother is still alive, so the best thing to do is contact another lawyer that specilizes in trust administration so that he can legally advise you on what you can do. This may be a bad PERSON TRUSTEE looking for sole control and her own self dealing. If the the Trustee lawyer gave you stating the reasons why you were removed or just stated that you have no rights to ask , then you must contact a different lawyer to represent you on this matter. Let your new lawyer read your blogg so he can understand what is actually taking place right now. Because this doesnt sound right , especially if the mother is becomming very ill. Sometimes Trustees want all control and after the person passes away, they self deal. So, I would contact a different lawyer and notify ELDER PROTECTION AGENCY for elder financial abuse in your area immediatly. you need help asap. Find a lawyer fast. GOD BE WITH YOU.
Ricardo Barrera said,
July 4, 2007 at 2:40 pm
My wife is the trustee for my child’s trust account which he received in a settlement. My wife has been siphoning money from this account for the past six months. She has been transferring money from his account to ours in order to cover for her outrageous spending. We are currently in our first stages of divorce. I was wondering if there is a way to remove her as trustee because in her mind she is planning to receive alimony, child support and to keep my child’s trust for herself. My child is only four years old and does not have a clue what’s going on. Can there be be a negative impact on her once the divorce is over? Concerned parent.
Irina Netchaev said,
September 23, 2007 at 1:12 pm
Natalie, great post! What are the obligations of the successor trustee as far as the creditors bills go? Our uncle passed away on 6/30/07 and left a living trust. We are getting all sorts of medical bills from 2006 and earlier. I have no way of verifying that the services actually took place. There is not enough money in the estate to pay all these bills. What does a creditor need to do to prove that it’s a legitimate bill. Do you recommend negotiating with the creditors? If so, is there a particular % on the dollar that is standard?
Also, I understand that the creditors have 1 year to submit all the bills. Does that mean that whatever is received after June 30th of next year can be ignored?
Any help would be greatly appreciated!
J. Leslie said,
September 24, 2007 at 9:26 am
With CA irrevocable trusts that are bank administered, what are the rights of a beneficiary if the
‘other beneficairy ‘ does not file appropriate papers with the bank (thus holding up distribution….
can the trust be bifurcated and settlement of 1/2 of the estate be given to the beneficiary who has provided
appropriate data, What is the timeline for
settlement in such a situation?