With tax season behind us it is a good time to review your personal affairs and get them in order. If you do not have your estate plan in place, or if it was completed more than five (5) years ago, take this opportunity to get everything completed or updated.
For many people, an estate plan that centers around a revocable living trust is the best option. The reason for that was explained in a prior article, Do I Need a Will, a Trust or Both? This article will discuss the duties of the person or entity that will be in charge of the assets that are placed in the trust. That person or entity is called a trustee.
A trustee is required to hold the property in trust for the beneficiaries named in the trust, follow the terms of the trust and pay or distribute the property as stated in the trust instrument. The trustee is required by law to adhere to numerous fiduciary duties while serving as trustee. Some of the fiduciary duties applicable to a trustee are:
- Duty of Loyalty
One of the numerous duties imposed upon a trustee by law is the Duty of Loyalty. That is, the trustee must not place the trustee’s interests above those of the beneficiaries of the trust. Further, a trustee may not seek any advantage at the expense of any beneficiary.
- Duty to Avoid Conflicts of Interest
Another duty owed to the beneficiaries by the trustee is the Duty to Avoid Conflicts of Interest. Conflicts of interest often arise when the trustee profits from the use of trust assets. Another conflict of interest arises in situations where a trustee obtains an advantage over a beneficiary from a transaction the trustee carried out while administering the trust.
a. No Self-Dealing
Self-dealing includes instances where the trustee enters into a favorable transaction with himself or herself. Even if the transaction is fair and in good faith the trustee may be liable for improper self-dealing and a breach of fiduciary duty. For example, the trustee purchasing property from the trust for his or her personal ownership may constitute self-dealing because the trustee is both the seller (on behalf of the trust) and the buyer.
b. No Conflicting Personal or Business Interests
Conflicts of interest may also result in cases where the trustee is also a principal of a company in which the trust owns an interest. In those situations, the duties the trustee owes to the beneficiaries of the trust may conflict with those duties the trustee owes to the shareholders or other owners of the company. Such conflicts of interest may result in a breach of fiduciary duty.
- Duty of Impartiality
The trustee is not permitted to favor one beneficiary or class of beneficiaries over others. The trustee must act impartially at all times, especially when investing and managing trust property, all while considering the various interests of the different beneficiaries. Likewise, if the trustee complies with the demands of some beneficiaries while ignoring the objections of other beneficiaries, the trustee may have violated the Duty of Impartiality. You cannot always make all beneficiaries happy but a trustee cannot favor one beneficiary over others.
There are numerous other fiduciary duties owed by trustees to beneficiaries, including the Duty of Disclosure and Duty Not to Delegate the trustee’s responsibilities. Those fiduciary duties will be discussed in a future edition of ClarkTalk Blog.
Thank you for joining us on ClarkTalk! We look forward to seeing you again on this forum. Please note that the views expressed in the above blog do not constitute legal advice and are not intended to substitute the need for an attorney to represent your interest relating to the subject matter covered by the blog. If you have any questions about fiduciary duties owed by trustees to beneficiaries, please feel free to email Bret Carter at firstname.lastname@example.org or to call him at 213.629.5700. For more information about Clark & Trevithick’s Trusts & Estates practice, please visit our website at www.ClarkTrev.com.