Trustee Duties to Beneficiaries: A Fiduciary's Obligation

Serving as a Trustee is a significant responsibility—one that comes with serious legal and financial obligations. For beneficiaries, understanding what your Trustee is required to do is crucial for ensuring the smooth and proper administration of a trust.

At its core, a Trustee is a fiduciary, which means they have a legal obligation to act in the best interests of the trust's beneficiaries. This is a high legal standard, and a failure to meet it can lead to serious consequences, including personal liability for the Trustee.

Here are the four cornerstones of a Trustee’s duties to beneficiaries, as defined by law and best practice:

1. Duty of Loyalty: Act in the Best Interest of the Beneficiaries

The Duty of Loyalty is paramount. It means the Trustee must administer the trust solely for the benefit of the beneficiaries.

• No Self-Dealing: A Trustee must not use trust assets for their own personal gain. This includes selling trust property to themselves, borrowing money from the trust, or using trust funds to invest in a business where the Trustee has a personal financial interest.

• Avoid Conflicts of Interest: The Trustee must steer clear of any situation that pits their personal interests against the interests of the beneficiaries. If a conflict arises, the beneficiaries' interests must always prevail.

2. Duty of Prudence and Care: Manage Assets Responsibly

Often referred to as the Duty of Prudent Investment, this requires the Trustee to manage and invest the trust assets with the skill and caution that a reasonably prudent person would use in managing their own affairs.

• Protect Trust Assets: The Trustee must take control of all trust property, keep it safe, and ensure it's properly insured.

• Invest Wisely: The Trustee must make investment decisions in the context of the trust as a whole, considering the trust's purposes, terms, distribution requirements, and other circumstances. Generally, investments must be diversified to minimize the risk of large losses.

• Exercise Special Skills: If a Trustee has special skills—such as being a financial professional or real estate expert—they are held to an even higher standard of care, meaning they must use those skills for the benefit of the trust.

3. Duty of Impartiality: Treat All Beneficiaries Fairly

When a trust has multiple beneficiaries, the Trustee has a duty to act impartially. This means the Trustee must balance the competing interests of current beneficiaries (who may want immediate income) and future, or remainder, beneficiaries (who may prefer long-term asset growth).

• Even Hand: The Trustee must treat all beneficiaries fairly and refrain from favoring one over another, unless the trust document explicitly instructs them to do so.

• Balancing Act: Investment and distribution decisions must consider the differing goals of income generation versus capital preservation.

4. Duty to Inform and Account: Transparency is Key

A Trustee has an ongoing obligation to keep beneficiaries informed about the trust’s administration.

• Provide Information: Beneficiaries have the right to receive relevant information about the trust's existence and their rights as a beneficiary.

• Regular Accounting: The Trustee must maintain clear, accurate, and detailed records of all transactions—income, expenses, and distributions. They are typically required to provide a formal accounting to beneficiaries on a regular basis (often annually or when the trust terminates). This allows beneficiaries to understand the financial activity of the trust.

• Respond to Requests: The Trustee should be responsive to reasonable requests for information regarding the trust’s administration.

What if a Trustee Breaches a Duty?

If a Trustee fails to fulfill these duties—whether through intentional misconduct, negligence, or simply misunderstanding their role—it constitutes a Breach of Fiduciary Duty.

A beneficiary who suspects a breach has legal recourse, which may include:

• Petitioning the Court to compel the Trustee to provide an accounting or other information.

• Seeking damages (a "surcharge") to compensate the trust for any losses caused by the Trustee's breach.

• Petitioning the Court to remove the Trustee and appoint a replacement.

Don't Navigate Trust Administration Alone

Trust administration can be complex, and the responsibilities are extensive. Whether you are a newly appointed Trustee seeking guidance to fulfill your duties or a beneficiary concerned about the administration of a trust, consulting with an experienced legal team is a critical step.

At Stock Legal, we provide the clarity and expertise needed to navigate these complex responsibilities, ensuring that the intentions of the trust creator are honored and the rights of the beneficiaries are protected. Contact us today to discuss your estate administration needs.