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What fiduciary duties does a trustee need to fulfill?

A trustee occupies a position of trust and confidence. If a trustee manages the property poorly, the beneficiaries bear the loss. The law regulates this risk primarily by imposing a number of fiduciary duties on the trustee that he or she owes; the duties of loyalty and prudence in particular, and then a number of subsidiary duties.

  • Duty to administer the trust.
  • Duty of loyalty-The trustee owes the trust beneficiaries absolute loyalty, everything the trustee does must be done solely in the best interest of the beneficiaries.
  • Duty to deal impartially with beneficiaries-The trustee’s duty of loyalty extends to all beneficiaries, those holding the present interest and those holding the future interest. Since the beneficiaries have different property interests, their personal interests often conflict. Thus, the trustee must invest the property so that it produces a reasonable income while preserving the principal for the remaindermen.
  • Duty to avoid conflicts of interest-A conflict of interest arises where the trust deals with another party with whom the trustee has an interest that may affect the trustee’s assessment of the proposed transactions. The transaction is assessed to see if it is reasonable and fair under the circumstances.
  • Duty against self-dealing-Self-dealing arises where the trust and the trustee engage in a transaction. The beneficiary’s interest must prevail; therefore self-dealing raises an irrebuttable presumption of breach of duty of loyalty. Once it has been established that self-dealing has occurred, no further inquiry of the trustee’s reasonableness or good faith is necessary or appropriate.
  • Duty not to undertake another trust adverse to the interest of the beneficiary of the first trust.
  • Duty to secure possession-Intrinsic in the trustee’s job to hold and manage the trust property is the duty to secure possession of the trust property in a timely manner.
  • Duty to preserve and make productive use of trust property-The trustee has a duty to administer with such skill and care as a person of ordinary prudence would use in dealing with his or her own property.
  • Duty not to commingle-There is a strict duty not to commingle the trust assets with the trustee’s assets because commingled assets make it more difficult to assess how the trustee is managing the property.
  • Duty to enforce claims and defend actions.
  • Duty not to delegate performance of acts that the trustee can reasonably be required personally to perform (with an exception for investment and financial management functions).
  • With respect to co-trustees, duty to participate in the administration of the trust and take reasonable steps to prevent a co-trustee from committing a breach of trust.
  • Duty to notify beneficiaries and report, account, and furnish information.

In addition to the above, the trustee must send a notification to current beneficiaries and heirs at law when:

  • A revocable trust or any portion of it becomes irrevocable
  • Because of the death of one or more of the settlors, or
  • By the express terms of the trust and within one year of a settlor’s death, because of a contingency related to the death of a settlor, or
  • There is a change of trustee of an irrevocable trust

The notification must include a statement that the recipient is entitled, on reasonable request, to the trustee, to receive from the trustee a true and complete copy of the terms of the trust and if the notification is served because a revocable trust or portion of it has become irrevocable, a boldfaced warning set out in a separate paragraph that the recipient has a specified limited amount of time in which to bring an action to contest the trust.