Providing Customized Legal Solutions Since 1979

Navigating the Responsibilities of a Trustee

by | May 14, 2024 | Firm News

Acting as Trustee can be a thankless job.  If you have ever been a trustee, you are well aware that it is a lot of work and, depending on the beneficiaries, can be very time consuming and stressful.  Luckily, I can represent Trustees rather than be a trustee.  Trustees are some of my favorite clients because they work so hard and really are doing an incredible service for the beneficiaries.  Being appointed as a trustee is a significant responsibility that requires a deep understanding of fiduciary duties, legal obligations, and the ability to navigate complex situations that may arise with beneficiaries. In California, the duties of trustees are outlined in the Probate Code sections 16060-16069, providing a framework for trustees to fulfill their obligations. In this blog post, we will delve into the specific duties of a trustee, explore real-life scenarios, and examine relevant case law to illustrate how trustees can effectively manage their responsibilities.

Understanding the Duties of a Trustee: The California Probate Code sections 16060-16069 lay out the fundamental duties of a trustee, including:

  1. Duty of Loyalty: Trustees must act solely in the best interests of the beneficiaries, avoiding conflicts of interest and self-dealing (Prob. Code, § 16002).
  2. Duty to Administer the Trust: Trustees are responsible for administering the trust according to its terms and in accordance with the law (Prob. Code, § 16000).
  3. Duty of Impartiality: Trustees must treat all beneficiaries fairly and impartially, regardless of their personal preferences or relationships (Prob. Code, § 16003).
  4. Duty to Account: Trustees are required to keep accurate records of all trust transactions and provide periodic accountings to the beneficiaries (Prob. Code, § 16060).
  5. Duty to Preserve and Protect Trust Property: Trustees must prudently manage and protect the trust assets, exercising the same care as a prudent person would with their own property (Prob. Code, § 16040).

Examples of issues that come up during a Trust administration:

  1. Conflicts of Interest: Sometimes there are conflicts that come up.  The Trustee must act in a manner that avoids conflicts or provides transparency to the beneficiary regarding potential conflicts.  Suppose a trustee also serves as the investment advisor for the trust. In such a scenario, the trustee must disclose this conflict of interest to the beneficiaries and obtain their consent, as established in the case law of Haskel v. First Trust and Savings Bank (2007).  Being the financial advisor of a Trust as well as the Trustee could potentially put you in an adverse position.  By investing in a particular fund, you may make more money for the Trust, or you may make more money for yourself as advisor, are you putting your interests as the advisor first or the interests of the beneficiaries first?
  2. Fairness and Impartiality: A trustee can breach their duty of impartiality by favoring one beneficiary over others when distributing trust assets. This highlights the importance of treating all beneficiaries equitably. A Trustee cannot play favorites, further if a Trustee is also a beneficiary, sometimes this can create its own conflicts of interest and separate counsel may be necessary.
  3. Prudent Management: A trustee can be found liable for losses incurred due to negligent investment decisions. The trustee’s duty to prudently manage trust assets and make informed investment choices is essential to their duties.  Some Trusts will create a lower or higher standard beyond the Prudent Investor standard.  Review the trust document carefully for liability limitations and investment authority.
  4. Accountability: Failure to provide accurate and timely accounting can lead to legal repercussions. Trustees can be removed and surcharged for failing to fulfill their duty to account.  When in doubt account.  Disclosure is key to running any claims that may crop up after you have provided and accounting.  If a Trustee disclosed the information in their accounting and provided transparency, then the ability for a beneficiary to later try and make a claim against a Trustee will be difficult.

Conclusion: As a trustee, it is imperative to fully grasp the duties outlined in the California Probate Code and adhere to them diligently. By understanding these responsibilities and learning from relevant case law examples, trustees can navigate the complexities of trust administration with confidence and integrity, ensuring the best interests of the beneficiaries are always prioritized.