Note: A Trustee's duties and responsibilities will ultimately depend on the governing state law and the terms of the trust. This post discusses the general duties and responsibilities for a Trustee in Indiana.
When a person creates a Trust, he or she appoints someone to serve as Trustee. Choosing who serves as Trustee is a personal and important decision. Often times, a person appoints a family member or friend. In other cases, a professional fiduciary or trust company is the best choice. If you've been appointed Trustee, what are your general duties and responsibilities?
Duty to Administer Trust by Its Terms. A Trustee has a fiduciary duty to the grantor (i.e. the person who created the trust) and the beneficiaries of the trust. Your duty is to accomplish the purpose for which the trust has been established. You must be guided in all acts and decisions by the terms of the trust. For example, if the trust directs that the Trustee invest assets and distribute income to a beneficiary, then you must do so. It is imperative that you read and understand the trust terms so that you can follow it. You may need to seek advice from a qualified attorney to administer the trust properly.
Duty of Skill and Care. As Trustee, you must do your best to administer the trust with care, skill, prudence, and diligence. Even if you have never served as Trustee before, you are held to a high standard and expected to accomplish the purpose of the trust.
Duty to Give Notice. You must carefully read the trust to determine when and under what circumstances you must give notice. For example, you may be required to give notice to the beneficiaries if you wish to resign or designate a successor Trustee. If you name a professional investment advisor, you may be required to give written notice to the beneficiaries.
Duty to Communicate. You have a duty to keep the beneficiaries informed regarding the trust and its administration. You should give information about the assets of the trust and its investment performance. You should also give additional information that is reasonably requested by a beneficiary.
Duty to Account. You must provide the beneficiaries with a written accounting of the assets, liabilities, receipts, and disbursements of the trust. You have an obligation to administer the trust solely in the interests of the beneficiaries. You must not act in a way that puts your personal interests in conflict with the beneficiaries' interests.
Duty Not to Delegate. A Trustee can employ agents (such as attorneys or accountants) to provide advice and assist in the administration. However, you still retain a supervisory responsibility. You must exercise reasonable judgment and discretion, even when you've hired someone to assist you. In some trusts, you may be authorized to delegate all or some of your powers to a Co-Trustee.
Duty to Segregate Trust Property. You must not commingle your personal funds or other non-trust assets with the property of the trust. Trust property must be separate at all times from your personal funds.
Duty of Impartiality. You must treat the beneficiaries impartially and follow the terms of the trust. You must show impartiality to all beneficiaries when making investment and discretionary distribution decisions. This is especially important when there are remainder beneficiaries. You must balance the interests of the current lifetime beneficiaries with the interests of the remainder beneficiaries (i.e. those who inherit what is leftover).
Duty to Invest. You have a duty to invest trust assets in a manner that is appropriate for the trust. Generally, the Trustee has a duty to diversify investments and determine an appropriate asset allocation program. In all cases, you should be prudent in handling trust investments.
Duty to Enforce and Defend Claims. The Trustee should take reasonable steps to enforce claims on behalf of the trust and to defend the trust against adverse claims. You should consider the financial situation of the trust in deciding whether to enforce or defend a claim. If the costs of enforcing or defending a claim outweigh the potential benefits, you may decide to settle or abandon the claim.
Duty of Confidentiality. As Trustee, you should keep the affairs of the trust confidential (except as required by law). You should not disclose the terms of the trust, the identity or interest of a beneficiary, or the trust assets to someone who is not a beneficiary or who does not need the information to assist in the trust administration. You should keep any personal information you learn about the beneficiaries confidential.
A Trustee who performs his duties faithfully is entitled to financial compensation. However, a Trustee who fails to perform his duties properly may be liable to the trust and its beneficiaries. Many people have never served as Trustee before or may have a complex trust to administer. It may be prudent to hire an experienced attorney to assist you with the trust administration. Our attorneys have a combined experience of over 30 years in trust administration. We would be happy to help you fulfill your role as Trustee.