Trustee Duties and Liabilities: What You Need to Know
April 10, 2023
A trustee is a person or entity that holds legal title to property for the benefit of another person or entity, known as the beneficiary. In this role, the trustee has a number of important duties and responsibilities, as well as potential liabilities if those duties are not fulfilled properly. In this article, we’ll take a closer look at trustee duties and liabilities.
The duties of a trustee can vary depending on the type of trust, but generally, there are some key duties that apply to all trustees:
Duty of Loyalty
The duty of loyalty requires the trustee to act in the best interests of the beneficiary, and not to pursue any personal gain or benefit that conflicts with the beneficiary’s interests. This duty requires the trustee to avoid any conflicts of interest and to disclose any potential conflicts to the beneficiary.
Duty of Prudence
The duty of prudence requires the trustee to exercise reasonable care, skill, and caution in managing the trust assets. This duty includes investing the assets prudently and diversifying the investments to minimize the risk of loss.
Duty to Follow the Terms of the Trust
The trustee is also responsible for following the terms of the trust, as set out in the trust document. This duty includes distributing the trust assets to the beneficiary as required by the terms of the trust.
Duty to Keep Accurate Records
The trustee must keep accurate records of all transactions related to the trust, including investments, distributions, and other financial transactions.
If a trustee fails to fulfill one or more of these duties, they may be liable for any losses that result. The specific liabilities can vary depending on the nature of the breach, but generally include:
Breach of Duty of Loyalty
If a trustee breaches the duty of loyalty by pursuing their own interests or failing to disclose conflicts of interest, they may be liable for any losses suffered by the beneficiary as a result of the breach.
Breach of Duty of Prudence
If a trustee breaches the duty of prudence by investing the assets imprudently or failing to diversify the investments, they may be liable for any losses suffered by the beneficiary as a result of the breach.
Breach of Duty to Follow the Terms of the Trust
If a trustee breaches the duty to follow the terms of the trust by failing to distribute the assets as required by the trust document, they may be liable for any losses suffered by the beneficiary as a result of the breach.
Failures to Keep Accurate Records
If the trustee does not keep accurate records of trust transactions, they can be held liable for any resulting losses suffered by the beneficiary or for any damages resulting from their failure to keep accurate records.
Trustees play an important role in managing trusts and fulfilling the wishes of the trust creator. However, the duties of a trustee should not be taken lightly, as failure to fulfill these duties can lead to serious consequences. It is important for both trustees and beneficiaries to understand these duties and liabilities in order to ensure that the trust is managed properly and fairly.
Our Office Can Help
Click here to Schedule a FREE Virtual Estate Planning Session. We will guide you through the entire process and help you understand what needs to be done to ensure your loved ones are taken care of.
Cheer the good stuff. When you notice your child doing something helpful or nice, let them know how you feel. It's a great way to reinforce good behavior so they're more likely to keep doing it.