Trusts are a common tool used in estate plans. Wills are no longer the dominant method to secure property and assets for loved ones. Trusts, in fact, provide a number of benefits to the settlor or trustor – the person who creates the trust – while they are still alive, so in many ways, it makes sense to create a trust. The problem is this: appointing a trustee who will comply with the law, fulfill the terms of the trust, and always act in good faith. Appointing the right trustee is critical because they have many obligations to uphold.
At The Burns Firm, our estate planning attorney handles all types of trusts. We also help clients understand the role of the trustee and how best to pick a trustee(s) suitable for the responsibilities. Contact us at (949) 305-8642 to schedule a Free 15 minute phone consult per availability to learn more about trust creation, including appointing a trustee, and how trusts can complement your estate plan.
What Are Trustees?
A trustee is a person, or an entity, that acts as a custodian for assets placed in a trust. A trustee may be responsible for administering, managing, and distributing trust assets. A trustee has a fiduciary responsibility to conduct their duties in a way that adheres to the rules of the trust and benefits the beneficiaries of the trust. A trustee must typically be at least 18 years of age and of sound mind. They cannot be the sole beneficiary of the trust. A trustee may also be an entity, such as a bank or corporation.
What Are the Duties of Trustees in California?
Being a trustee is a major responsibility, and it should not be taken lightly. A trustee has certain duties they must fulfill. These obligations are generally listed in the terms of the trust itself and may include a number of tasks as described as examples below.
Document Management (Record Keeping)
A trustee should keep records of everything they do in their role as trustee. They must keep copies of all receipts and proof of all debits and necessary expenditures.
A large amount of money can pass into and out of a trust. The trustee is responsible for keeping a detailed accounting of all income and expenses. These records are essential to appropriately undertake tax requirements and to protect the trustee in the chance their handling of the trust is ever scrutinized.
A trustee is responsible for distributing the trust assets pursuant to the terms of the trust. In some cases, this will require the trustee to use their discretion to determine which beneficiaries (if there is more than one) should receive a distribution and in what amount. In other cases, the terms of the trust will dictate how and to whom the assets should be distributed.
When a trust has more than one trustee, they must meet to ensure they are on the same page with the trust administration.
File and Pay Taxes
Some trustees must file and pay taxes. The trustee is responsible for ensuring this is taken care of and typically does so by hiring a CPA.
Asset and Property Management
Trusts often contain a mixture of assets, from cash money to real property. A trustee is responsible for protecting and preserving these assets. Sometimes, this duty includes collecting on debts that are owed to the trust, such as rent. It may also require the trustee to obtain the necessary insurance for trust assets.
Common Breaches of Trustee Duties in California
Too often, trustees breach their duties. Some of the most common ways they do this include breaches of trust, funds misappropriation, poor management, fraudulent acts, failure to act, and engagement with a competitor.
Breach of Trust
Trustees owe a fiduciary duty. They must never act in a way that is contrary to the best interest of the beneficiaries of the trust. When they do, they may have committed a breach of trust.
Misappropriation of Trust Funds
When a trustee uses trust funds for any purpose other than for which the funds were intended, the trustee may be held liable for misappropriation of trust funds.
Trustees have responsibilities, such as asset distribution. When they fail to follow through with those responsibilities or do not follow through with them correctly, they may be held liable for bad management.
A trustee who engages in an intentionally bad act that benefits them but is contrary to the interest of the beneficiaries may be held liable for fraud. An example would be a trustee stealing funds from a trust.
Failure to Act
A trustee cannot choose to take no action in administering the trust. They must carry out certain tasks, like:
- Gathering and reviewing all estate planning documents if they are connected to the trust
- Reviewing the trust agreement to understand everything about it
- Consulting with an attorney or financial advisor when they have questions
- Transferring assets into the trust as required or upon the settlor's death
- Creating an inventory, identifying the location of assets and their value
- Establishing a bank account for tax purposes and for any expenses related to the trust
- Locating and communicating with beneficiaries to carry out their duties in full
Any failure of any of the above as required by law or the trust can create serious problems for both the trustee, the settlor's estate, and the beneficiaries.
Bad Business Activities
When the trust owns a business, the trustee is bound to act in the business's best interest, which is also the best interest of the trust. Engaging a business that competes with the business owned by the trust can – if the former business benefits from the trustee's acts – be a violation of the trustee's duty.
Can Trustees Be Held Liable for Breaches in California?
Trustees can be held liable for the losses they cause to the trust they are administering. Typically, beneficiaries can recover assets of the trust that were distributed improperly if they can trace them.
Problems may arise in recovering the assets if an innocent purchaser bought them for value. There are, however, other avenues available for the beneficiaries and anyone else (such as a creditor) who suffered a loss due to the trustee's breach or wrongdoing.
What Should You Do If a Trustee in Orange County Has Breached Their Duty?
If you have suffered a loss due to a trustee breaching their duty, it is in your best interest to contact a lawyer in your jurisdiction that handles estate planning matters. They will be able to explain to you the options you have to recover from the loss you have sustained.
Contact an Estate Planning Attorney in Orange County Today
Above anything else, a trustee owes a fiduciary duty to carry out the terms of the trust as they were intended. At The Burns Firm, our trust lawyer in Orange County helps clients understand the responsibilities and liabilities of trustees. We want to make sure you are informed and know what is involved in trust creation and execution. Contact us either by filling out the online form or calling us at (949) 305-8642 to schedule a Free 15 minute phone consult per availability and to learn more about creating a trust and appointing the right trustee.