Have you been appointed as the Trustee or successor Trustee of a trust?  People often appoint their children or friends, but just as often those people are not familiar with what being a Trustee really means.  The trustee is a fiduciary of the trust, and owes “fiduciary duties” to the beneficiaries of the trust. These are the most stringent duties one person can have to another under the law. 

Here are a few pointers for those who are a Trustee or who are thinking about who to appoint as Trustee.

The duties conferred to the trustee depends on (i) the terms of the trust agreement, (ii) the Texas Trust Code, and (iii) common law.

The duties conferred to the trustee depends on (i) the terms of the trust agreement, (ii) the Texas Trust Code, and (iii) common law.

The trust agreement can modify or even eliminate fiduciary duties owed by a trustee but Texas Trust Code will not allow the trust agreement to modify or eliminate a fiduciary breach of duty which is committed in bad faith, intentionally, or with reckless indifference to the interest of the beneficiary.

The four main fiduciary duties are:

  • Self-dealing, in which the Trustee uses trust property or purchases trust property for its own benefit, is a common example of breaching the Duty of Loyalty.
  • Duty of Full Disclosure – this duty compels the Trustee to fully account to the beneficiaries, to keep them informed of the administration of the trust.
  • Duty to Exercise Reasonable Discretion – the trust agreement usually gives the Trustee the ability to exercise discretion, for example: in making distributions to the beneficiary, investing trust property, managing assets owned by the trust, hiring advisors, and spending trust funds
  • Duty to Competently Administer the Trust – the Trustee must be involved in the administration of the trust, and must take steps to protect the assets in a competent manner. 

Here are some basic tenets for the Trustee to remember:

  • You cannot mix trust assets with your own. You must keep separate checking accounts and investments.
  • You cannot use trust assets for your own benefit (unless the trust authorizes it).
  • You must treat trust beneficiaries the same; you cannot favor one over another (unless the trust says you can).
  • Trust assets must be invested in a prudent manner, in a way that will result in reasonable growth with minimum risk.
  • You are responsible for keeping accurate records, filing tax returns and reporting to the beneficiaries as the trust requires

The following are some of the duties of the Trustee upon the incapacity of a Grantor

  • Oversee the care of the incapacitated person and any minors and dependents
  • Review insurance benefits and limitations
  • Apply for disability benefits as needed
  • Engage advisors to assist if needed
  • Notify banks and other asset holders
  • Transact necessary business
  • Keep accurate records and accounting

The following are some of the duties of the Trustee upon the death of a Grantor

  • Contact an attorney to review trust and the administration process
  • Keep beneficiaries informed of the progress of the administration
  • Assemble a  team of advisors as needed
  • Inventory assets, determine current values, get appraisals
  • Collect benefits, keep records, file tax returns
  • Pay bills, complete a final accounting
  • Distribute assets to beneficiaries as the trust agreement directs