What is a Trustee? Key Duties of a Trustee Explained

A trustee is a person or entity who is designated to administer the assets in a trust. They are responsible for managing the trust, making investments, and distributing the trust assets. However, being a trustee also comes with a broad scope of legal and ethical duties — if the trustee of a trust fails to carry out their duties properly, they could face serious consequences.

What are the Key Duties of a Trustee?

A trustee has a high level of responsibility to ensure the trust is administered correctly, and in accordance with the trust terms. They also have a fiduciary duty toward the trust beneficiaries. This includes the duty of care, good faith, and diligence in managing the trust assets. A trustee must avoid self-dealing and act competently in all matters concerning the administration of the trust.

Other key duties of a trustee include the following:

Duty of Impartiality

A trustee’s duty of impartiality requires them to act fairly and without bias when managing a trust. This duty requires a trustee to ensure no beneficiary is favored over another. Specifically, they must consider the interests of both the income beneficiaries and the remainder beneficiaries.

Duty of Loyalty

The trustee’s duty of loyalty requires them to act in the best interests of the beneficiaries. They are required to prioritize the interests of the beneficiaries above their own when managing the trust — and avoid any conflicts of interest. Under California law, a trustee is prohibited from taking part in any transaction in which the trustee has an interest adverse to the beneficiaries.

Duty to Manage the Trust Assets Prudently

The duty to manage trust assets prudently means that the trustee must make sound decisions regarding the investment of the trust assets. In other words, they must act as a prudent investor would by diversifying investments and minimizing risk. The trustee of a trust must take the long-term objectives of the trust into consideration with each investment decision and make any adjustments necessary to the trust portfolio based on the conditions of the market.

Duty to Administer the Trust

A trustee’s primary duty is to administer the trust according to the directives specified in the trust instrument. The document will specify the beneficiaries who are entitled to a distribution, when the distributions should be made, and how the trust assets should be managed. While a trustee is permitted to delegate certain duties when it comes to administering the trust, they cannot delegate their obligation to protect the interests of the beneficiaries. They are ultimately responsible for the overall administration of the trust and must monitor any agents they have appointed.

Duty to Keep Beneficiaries Informed

A trustee’s responsibilities include keeping the beneficiaries apprised regarding any relevant information concerning the trust. The duty to keep beneficiaries informed includes:

• Notifying beneficiaries regarding the trust
• Providing the beneficiaries with access to information
• Responding to the beneficiaries’ reasonable requests for information

If a trustee is not transparent or fails to communicate with the beneficiaries, they may be removed from their role or incur personal liability for any losses incurred by the trust.

Duty to Keep Accurate Records

A trustee of a trust must keep detailed records of all transactions in connection with the trust. They are also required to provide the beneficiaries with a financial report that details the trust assets, income, expenses, distributions, and any changes in the investments. If the beneficiaries request an accounting, the trustee must provide one — otherwise, they may face legal action. The trustee is also responsible for filing tax returns for the trust.

What Happens if a Trustee Violates Their Duties?

A trustee can face a wide range of legal and financial consequences if they fail to act in the best interests of the beneficiaries or manage the trust assets poorly. A beneficiary may be entitled to pursue a civil lawsuit for their breach of fiduciary duty to recover the damages. Beneficiaries may also demand an accounting of all trust transactions or sue the trustee for a surcharge to recover the monetary losses suffered due to the trustee’s breach.

Other consequences a trustee may face for breaching their duties can include:

• Removal from their position — A trustee can be removed from their position if they breach their fiduciary duty toward the beneficiaries or fail to administer the trust properly.
• Financial penalties — A trustee may be required to pay damages to the beneficiaries to account for any losses the trust incurred due to their breach or failure to adhere to the trust terms.
• Criminal liability — Depending on the specific wrongdoing that occurred, a trustee may be held criminally liable. For instance, if the trustee committed fraud or they embezzled funds from the trust, they could face misdemeanor or felony charges.

In addition, if the trustee is not performing their duties properly, the court can issue an order compelling them to act. A temporary trustee may be appointed to take over the primary trustee’s duties until the issues are resolved.

Contact an Experienced California Trusts and Estates Attorney

If you are the beneficiary of a trust and believe the trustee is not managing the assets correctly, you may be eligible to pursue a legal remedy. However, the process of filing a lawsuit against a trustee can be complex and it’s best to have an experienced attorney to help you navigate the process. The California trusts and estates litigation attorneys at White and Bright have extensive experience working with beneficiaries regarding a wide variety of trusts and estates matters and work to secure the best possible outcome in every case. Contact us online or call (760) 747-3200 to schedule a consultation.