Written by Scottsdale Estate Litigation Attorney Julio Zapata
Estate planning or asset protection often involves the creation of a trust. Whether you plan to create a trust, are a trustee or are a trust beneficiary, you should familiarize yourself with the law that governs trustees. Every trust is unique so seeking the advice from a legal professional may be appropriate.
Trustees and Beneficiaries.
When a trust is created the person creating the trust may provide how he/she wants the trust invested. Significantly, most trusts do not contain specific investment direction for a trustee to take because the kinds of investments and return on investments change over time. Under the law, however, when the trust is silent a statute governs the trustee’s obligations. A trustee is a fiduciary. A fiduciary is a person who has a legal duty, created by his/her undertaking, to act for the benefit of another in matters connected with that undertaking. A trustee is responsible for the administration of the trust assets and must use appropriate care for the benefit of the trust beneficiaries. A trustee owes fiduciary obligations to the trust beneficiaries. When these fiduciary obligations become questioned by beneficiaries, a trustee may be sued for breach of fiduciary duty. Examples include: failure to invest trust assets prudently, failure to look out for the best interests of all the beneficiaries, taking money from the trust for non-trust purposes, or failing to account to trust beneficiaries.
Trustee’s Fiduciary Duties.
Fiduciary relationships can be created as a matter of law or as a matter of fact. For example, a fiduciary relationship can exist, as a matter of law, when a trustee accepts to be a trustee under the trust or as an agent under a power of attorney. With regard to existence of a fiduciary relationship as a matter of fact, courts have found them to exist where an individual took care of an elderly person’s health care and finances even though power of attorney documents were never executed. A fiduciary’s duties include using reasonable care, skill, and caution, serving loyally and impartially. In other words, a trustee is under a duty to absolute loyalty to the trust beneficiaries. The trustee must put the beneficiaries’ interests before his/her own and administer the trust solely for their benefit. Consequently, a trustee must not undertake any transaction that would be adverse to the beneficiaries’ interests, including avoiding any self-dealing.
When a trustee accepts the appointment as trustee, the trustee has a duty to take and keep control of the trust property consistent with the terms of the trust agreement. The process involves acquiring any land, tangible personal property and documents associated with intangibles, such as stock certificates. The duty to collect trust assets come with the duty to enforce all rights or claims of the trust against third parties. A trustee may face liability if he/she delays taking control of the assets that result in losses to the beneficiaries, depending on the circumstances. In addition, a trustee is required to keep trust assets separate from his/her own assets and identify them as specifically being associated with the trust. A trustee is also under a duty to keep clear and accurate records and make regular accountings to the beneficiaries, which may also include providing an accounting, periodically, to the court.
The amount of trust litigation against trustees in our legal system suggests that it is not unusual for a trustee to act contrary to his/her responsibilities and obligations under the law. When creating a trust you should select a trustee wisely. By asking questions from your legal advisor you can find out if policies and procedures are in place to ensure adherence to the law. Beneficiaries should meet with their trustee periodically to become acquainted with the trustee and to satisfy yourself that your trustee is acting consistently with the requirements under the law. When you have doubts, contact your legal professional.
About Mr. Zapata: Mr. Zapata works Of Counsel in the Probate and Estate Litigation Department of the Dana Law Firm, P.A. Mr. Zapata is the lead attorney for all probate and estate litigation matters. To see more learn more about Mr. Zapata, click here.