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Thursday, January 23, 2020

What Are the Fiduciary Duties of a Trustee?

A fiduciary shares a legal relationship with the principal that comes with certain responsibilities, or duties. The Principal is owed the duty and the fiduciary carries the burden of upholding the duty. A prime example of a fiduciary relationship is that which exists between a trustee and trust beneficiaries. Trustees have fiduciary duties they must uphold when managing a trust. If the trustee breaches a fiduciary duty, he or she may be held personally liable.

The Fiduciary Duties of a Trustee

There are several duties bestowed upon the trustee. While the trustee of a trust holds legal title to trust property, he or she owed fiduciary duties to the trust beneficiaries as they hold equitable title to the trust property. Among these fiduciary duties is the duty of care and the duty of prudence. The trustee is tasked with managing trust property and trust transactions with reasonable care and caution. The trustee must monitor trust investments to make sure they are productive and, whenever possible, avoiding loss.

The duty of care goes hand in hand with the duty to invest. The trustee has a duty to invest and make the trust property productive through prudent investments. Additionally, the trustee has the duty to secure and safeguard trust property. This means the trustee must protect the trust property he or she has been tasked with controlling. Failure in this duty that resulted in any loss of trust property opens up the trustee for being held personally liable for the loss.

Because the trustee holds legal title to trust property, but the beneficiaries hold an equitable title, the trustee has a duty of loyalty. This means that the trustee must not put his or her own interest before the interest of the beneficiaries. The trustee may not participate in “self-dealing transactions” where the trustee would personally benefit by benefiting from a trust transaction. Also, the trustee is prevented from trust dealings that would be contrary to the best interest of the beneficiaries. The duty of loyalty owed to the beneficiary must also equally apply to all beneficiaries. The duty of impartiality means that there can be no favoritism among classes of beneficiaries.

There are more fiduciary duties still. The trustee has the duty to segregate. This means that the trustee must keep all trust assets separate from his or her own assets. There can be no commingling of trust assets and the trustee’s personal assets. The trustee must distinguish these two types of assets through earmarking trust assets. It is imperative that the trustee be able to distinguish all trust assets from his or her own assets. The trustee will be held liable for any commingling, even accidental commingling, that may occur.

Last, but not least, the trustee has the duty to inform and account. The trustee must keep the beneficiaries informed of trust dealings and provide them with up to date accountings of trust assets. This duty entails the trustee staying organized and maintaining accurate and current records of things like trust investments and any profits, losses, or other expenses the trust has sustained.

Estate Planning Attorneys

Monk Law helps our clients establish trusts and put other legal tools in place to maximize the benefits that can come with having an estate plan in place. We counsel our clients on the management of their estate. We are here to help with all aspects of the estate planning process. Contact us today.


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