There are fifteen (15) duties that Trustees owe to Beneficiaries of a trust as follows:
1. Duty of Loyalty. The Trustee is under a duty to the Beneficiary to administer the Trust solely in the interest of the Beneficiary. The Trustee’s fiduciary relationship with the Beneficiary goes beyond the fiduciary relationship of agent to a principal, and is more intensive.
A Trustee may not use Trust property for his/her own purposes.
Trustees have borrowed money from Trusts that they administer sometimes paying a generous rate of interest and making repayments on schedule, but this is a breach of trust, unless authorized by the Trust Instrument.
All Trustees must be studiously concerned with the welfare of third parties in administering the Trust, whether or not their welfare affects such Trustee.
It is important for a Trustee to keep confidential any information about a Beneficiary that would be detrimental to such Beneficiary if disclosed.
This is why bank trust departments are continually cautioning their employees not to discuss matters concerning Beneficiaries in elevators, restaurants and other public places.
2. Duty to Deal Impartially with Beneficiaries. If there is more than one Beneficiary, a Trustee has a duty to treat all of them impartially (which is not necessarily equally) and not favor one over the other. This applies not only to Beneficiaries who have a concurrent interest in the trust but also to those whose interests may succeed those of others.
An example of where a classic conflict exists between Beneficiaries is where the current income Beneficiary wants all the income the Trust can possibly generate, and the future Beneficiary wants maximum capital appreciation for the Trust property that will be eventually distributed to him/her.
The Trustee’s duty to be impartial would require it to steer a middle course, investing for both a reasonable income yield and moderate appreciation of the principal, assuming that the Trustee is permitted to invest for capital appreciation. If both Beneficiaries are unhappy, the Trustee is probably doing well by both of them.
3. Duty to Take Trust Property and Keep Control of It. A Trustee has a duty to gather all Trust property into its possession and keep it under its control.
4. Duty to Keep Trust Property Segregated. A Trustee must keep Trust property registered in the name of the Trust and keep it separate from other property, such as a Trustee’s own property or that of other Trusts under such Trustee’s control. For example, a Trustee cannot keep cash belonging to the Trust in its personal account to suit its convenience, however honorable their intentions.
5. Duty to Preserve and Protect Trust Property. A Trustee must preserve Trust property by protecting it from loss or damage. Examples are carrying appropriate insurance coverage, providing adequate safekeeping for such items as securities, important documents or coin collections, and keeping premises safe from intruders.
The Trustee’s duty to preserve Trust property obviously extends to its investment decisions, where the Trustee should avoid the decline in asset values through careful monitoring and decisive actions.
6. Duty to Make Trust Property Productive. Barring an exception made in the Trust Instrument, a Trustee should convert unproductive intangible personal property and real property to assets that produce income, rather than hold it in hopes of future capital appreciation.
7. Duty to Pay Income (timely) to Beneficiaries. A Trustee has a duty to pay income of a Trust to the Beneficiary at reasonable intervals, assuming the Trust’s purpose is to pay income to the Beneficiary for a period of time.
8. Duty to Keep and Render Accounts. Every Trustee is under a duty to keep clear and accurate accounts showing in detail the nature and value of the Trust property and how such Trustee has administered it.
9. Duty to Furnish Information. Because the Trust exists for the Beneficiary, it stands to reason that a Trustee has a duty to provide the Beneficiary with any information the Beneficiary requests about the nature and value of the Trust property.
A Beneficiary is entitled to whatever information he/she needs to enforce his/her rights as under the Trust, or to deal with or prevent a breach of Trust, regardless of what the Trust instrument may say on this point. The Beneficiary is also entitled to have an accountant examine the Trustee’s accounts, vouchers, securities and other records and documents.
10. Duty to Exercise Reasonable Skill and Care. The Beneficiaries have the right to expect a Trustee to exercise the same skill and care that someone with ordinary prudence would exercise in respect to his/her own property.
11. Duty Not to Delegate. As a fiduciary, a Trustee is under a duty to the Beneficiary to personally perform acts which it can reasonably be expected to perform on its own, and not delegate performance to others.
12. Duty to Enforce Claims. If a Trustee holds a claim, it is obligated to the Beneficiary to take reasonable steps to enforce such claims. Normally claims are thought of as rights to be enforced against outsiders, such as vendors, businesses, tenants or professionals. With a Trust, it’s possible that the Trustee may need to enforce a claim for Trust property against individuals closer to the Trust. The property might still be in the possession of a prior Trustee or in the hands of an Executor / Personal Representative of an estate. In enforcing claims, a Trustee should apple the test of reasonableness.
13. Duty to Defend Actions. If the Trust is on the receiving end of an action, the Trustee has a duty to the Beneficiary to defend the action to protect the Trust property from loss and to appeal to a higher court if such Trustee loses. As with the duty to enforce claims, the Trustee should apply the test of reasonableness.
The Trustee can compromise a claim or submit it to the arbitration, and pay a claim that may not be enforceable but also not worth the trouble to defend against.
14. Duty Concerning Co-Trustees. If there is more than one Trustee, a Trustee is under a duty to the Beneficiary to take part in the administration of the Trust. Every Trustee must also exercise reasonable care to prevent a Co-Trustee from committing a breach of Trust, and it must compel a Co-Trustee to correct a breach of Trust.
Normally when an individual is serving as Co-Trustee with a bank or trust company, the corporate Trustee will have possession of the Trust property and take charge of all ministerial duties. This is proper because a bank or trust company is well organized to provide such services as custody, tax compliance, safe keeping and investment transactions.
It is also subject to state or federal laws and examinations that don’t apply to individual Trustees, and it conducts internal audits, as well.
Nevertheless, such individual Trustees cannot assume that professional Trustees, corporate or individual, never make mistakes and therefore such individual Trustees must remain vigilant.
An individual Trustee can’t ignore his/her own responsibilities because a professional Co-Trustee is supposed to have more experience and skill.
15. Duty with Respect to Individuals Having Control Powers. A Trustee has a duty to cooperate with individuals having control over certain aspects of the Trust Administration and follow their directions in their exercise of this control, unless such exercise conflicts with that individual’s duty to Beneficiaries or with the terms of the Trust.