A trustee manages trust property for the benefit of the beneficiaries, not for themselves, and owes fiduciary duties including loyalty, prudent management, impartiality between beneficiaries, and keeping accurate records. These duties apply whether the trustee is a family member, a friend, or a professional.
Key Takeaways
- A trustee's core obligation is to act in the beneficiaries' interest, not their own.
- Duties include prudent investing, impartiality among multiple beneficiaries, and accurate recordkeeping.
- A trustee can be held personally liable for breaching these duties.
- Serving as trustee is a real job with real responsibilities, not just a title.
What Is a Trustee Legally Required to Do?
A trustee holds legal title to trust property and manages it according to the trust document's terms and the fiduciary duties imposed by law. The Cornell Legal Information Institute's overview of the fiduciary duties of trustees describes these obligations as some of the strictest imposed by law, because a trustee controls property that legally and financially belongs to someone else's interest.
The Duty of Loyalty
A trustee must administer the trust solely in the interest of the beneficiaries, avoiding any conflict between the trustee's own interests and the beneficiaries' interests. This means a trustee generally cannot buy trust property for themselves, borrow from the trust, or otherwise use trust assets for personal benefit, even temporarily, without express authorization in the trust document or beneficiary consent.
The Duty of Prudent Administration
A trustee must manage and invest trust assets the way a reasonably prudent person would manage their own property, considering the purposes, terms, and beneficiaries of the trust. This does not mean a trustee must be a financial expert, but it does mean avoiding reckless or speculative decisions with trust property and diversifying investments unless the trust specifically directs otherwise.
The Duty of Impartiality
When a trust has multiple beneficiaries, whether at the same time or across different generations, the trustee must treat them all fairly according to their respective interests under the trust terms, without favoring one beneficiary over another for personal reasons. This becomes especially important in blended families or when a trust splits income and principal between different beneficiaries at different times.
The Duty to Keep Accurate Records and Report to Beneficiaries
A trustee must keep clear records of trust property, income, and expenses, and generally must provide beneficiaries with information about the trust and its administration on request. Beneficiaries have a right to know what the trust owns and how it is being managed, and a trustee who fails to provide this information can face legal challenges from the people they are supposed to be serving.
The Duty to Follow the Trust's Terms
Beyond the general fiduciary duties, a trustee must actually follow the specific instructions written into the trust document, whether that means distributing income at set intervals, holding principal until a beneficiary reaches a certain age, or making discretionary distributions only for specific purposes like health or education. A trustee who ignores the trust's actual terms, even with good intentions, can still be held responsible for departing from what the settlor directed.
What Happens If a Trustee Breaches These Duties?
A trustee who breaches a fiduciary duty, whether through self-dealing, negligence, or simply ignoring the trust terms, can be held personally liable to the beneficiaries for any resulting loss. Courts can remove a trustee, require repayment of losses, or in serious cases refer conduct for further legal action. This is why choosing the right trustee matters as much as drafting the trust itself; see how to choose a successor trustee for what to look for.
Do These Duties Apply the Same Way to a Successor Trustee?
Yes. A successor trustee, the person who takes over after the original trustee dies, resigns, or becomes incapacitated, owes the exact same fiduciary duties from the moment they step into the role. This is one reason a funded living trust avoids probate so cleanly; see how a trust avoids probate for how that handoff works without court supervision, since the successor trustee's authority comes directly from the trust document, not a court order.
FastWill's trust package includes clear guidance on trustee responsibilities so whoever you name understands the role before they are asked to step into it.
Frequently Asked Questions
Can a trustee also be a beneficiary of the same trust?
Yes, this is common, especially with revocable living trusts where the settlor serves as both trustee and primary beneficiary during their lifetime. The duty of loyalty still applies once other beneficiaries have an interest, such as after the settlor's death.
Does a trustee get paid for managing a trust?
Trustees can be entitled to reasonable compensation for their work, either as set out in the trust document or under state law, though family members serving as trustee often waive payment. A corporate or professional trustee typically charges a fee based on the trust's assets.
What is the difference between a trustee's duties and an executor's duties?
A trustee manages trust property, often for years, under the ongoing fiduciary duties described here. An executor's role is generally shorter and focused on settling the probate estate, paying debts, and distributing assets under court supervision.
Can beneficiaries remove a trustee who is not doing a good job?
Depending on the trust terms and state law, beneficiaries can sometimes petition a court to remove a trustee for breach of duty, mismanagement, or an ongoing conflict of interest. The exact process depends on the trust document and where the trust is administered.
Do trustee duties end when the trust terminates?
A trustee's duties continue until the trust is fully wound down, meaning final distributions are made, final accountings are provided, and any remaining administrative tasks are complete. The duties do not end simply because the last major asset has been distributed.
