Sunday, December 23, 2007

Trustee Duties Most Often Ignored

Serving as a trustee is not a task anyone should take lightly. It is a serious job and should be viewed as one. It could get you into a lot of trouble if not performed properly. Like a "real" job you can be replaced for making mistakes, however it does differ in one important way. You may be held personally liable for intentional or gross misconduct. But that's not all, ignorance of your duties is no defense. You are expected to know what's required and to act accordingly. Here are some examples of the duties most commonly ignored by trustees:

1.) The duty to disclose. For some reason trustees are sometimes reluctant to keep all of the trust beneficiaries reasonably informed of the trust and its administration. Let me explain, the trustee must furnish each beneficiary all material information necessary to protect the beneficiary’s interest in the trust. That includes a complete copy of the trust and an accounting of the trusts assets, debts, income, liabilities and the trustee's actions pursuant to the terms of the trust, by law or upon request of a beneficiary.

2.) The duty of impartiality. The trustee has a duty to deal impartially with all beneficiaries of a trust. She must act impartially in investing and managing trust property, while at the same time consider the differing interests of all beneficiaries. Let me explain what I mean. If one beneficiary would rather collect income for as long as possible because the trust assets are getting a higher rate of return than her own investments and another beneficiary is living hand to mouth and needs her distribution as soon as possible, the trustee is called upon to act impartially that is to say, to follow the terms of the trust and where there is discretion, she must act reasonable under the circumstances. Blindly following the recommendation of the majority of beneficiaries, over objections of the minority, or those of her favorite or respected sibling does not satisfy the duty of impartiality. Impartially means that the trustee does not favor one beneficiary over the other, including herself.

3.) The duty of loyalty. A trustee may not seek any advantage from a beneficiary, nor wield power for his or her own “aggrandizement, preference, or advantage” to the detriment of the beneficiaries. For example, trustees may not threaten to withhold distributions until beneficiaries sign waivers releasing them of any wrongdoing or deduct the costs of an accounting from only those beneficiaries who insist on having one done.

4.) The duty to avoid self-dealing. A trustee may not deal with himself as an individual, even if the proposed transaction seems fair, equitable and is made in good faith. Trustees who temporarily divert trust funds to themselves are guilty of self-dealing. Improper self-dealing is a breach of trust. Sure there are times when a trustee, who is also a beneficiary, may have the right to purchase trust property, but outside those circumstances, they should avoid any direct or indirect actions that even suggest they are self-dealing.

5.) The duty to keep trust assets separate. The trustee must properly identify trust assets and keep those assets separate from his or her own personal assets. If a trustee ever combines trust assets with his or her personal assets, the trustee is in effect defeating the trust’s purpose, as there would be no need to even have a trust. Let me be a bit more specific, trustees should never commingle money they received from the trust with their own personal bank accounts. Those funds should, instead, be deposited into a separate bank account held by the trust.

Let me just quickly recap. It has long been held by the courts, that a trustee is a fiduciary of the highest character whose duty demands uncompromising integrity. A trustee is bound to act in the highest good faith towards his beneficiaries and may not obtain any advantage by the slightest misrepresentation. Yet, some still ignore those duties. If you as a beneficiary ever run into a renegade trustee consult with an attorney right away. You have rights, which include removing the trustee and appointing someone who will treat the office of trustee as an important job.

One last thing. Trustees must be reasonably informed about their duties and responsibilities as specified under the terms of the trust. That means they must actually read the trust and if they don't understand the scope of their duties, they should retain counsel to assist them in its administration. How many of you think the average person could read and comprehend a standard family trust and carry out the duties as the trustee without consulting an attorney?

1 comment:

Matt Max said...

I am a victim of inheritance theft. I saw my father live the last 5-6 years of his life in senior squalor or Diogenes syndrome. My brother (there were 2 of us) lived out of state and never visited. After I told my family (brother and uncles) that my father needed help after living with him for a month and seeing that he didn't have a shower in the home that functioned, appliances such as a refrigerator that was continuously leaking, canned goods that were 10 years old and bursting, and was threatened by my family that If I called Senior Protective services that I would be disinherited. He lived in filth while having a fairly large inheritance. The family made up this story and told my father that his daughter was going to pt him in a nursing home. That lie perpetuated a silence until I visited him in an actual Assisted Care Facility and found him dead. At the funeral no one talked with me. When I asked for a copy of the trust, I was ignored. Thankfully there are litigation lawyers who help people like me right the wrongs. My father would do everything he could to hide his emotional and mental issues. I am sure that these past years were spent not only reclusive but devoid of love from the people he trusted. I was the one with children and grandchildren. If my father was in his right mind he would have loved his daughter for trying to get him into a better way of life.