A trust is a common estate planning method that allows settlors, or the persons establishing a trust, to place their assets into a trustee for the benefit of other individuals or entities. All trusts have at least one trustee that the settlors choose to administer the terms of the trust for all named beneficiaries or heirs to the assets. In many cases, married couples establish trusts for their children; the trust provisions go into effect and the trustee begins his or her duties only when the last surviving spouse passes away. Establishing a trust is one popular way to avoid the time and expense of going through probate proceedings following a person’s death. Trustees can distribute the trust assets to the beneficiaries according to the terms of the trust without the need for court filings or court approval.
People Who May Be Trustees
Generally, any competent adult may serve as a trustee. The settlor of the trust determines within the body of the trust who is to serve as trustee. In many cases, professionals such as bankers or accountants act as trustees, particularly in high-asset trusts. In other cases, however, family members, either immediate family members or distant family members also routinely serve as trustees. In the typical trust established by a married couple, for instance, the surviving spouse often acts as trustee until his or her death. At that time, either another family member or a professional person or entity serves as trustee. Finally, completely disinterested persons may serve as trustees, as well, whom the settlors trust to properly handle and disperse trust assets.
General Duties of Trustees
Since there is typically no court supervision over private trusts, state law has established duties and responsibilities to govern all trustees. In general, trustees typically have broadly defined powers and duties to protect and manage the assets contained in the trust. These duties may include paying taxes, ensuring that funds are properly invested to maximize growth, and ultimately, make distribution of the trust assets to the beneficiaries as the terms of the trust provide.
Initial Tasks for Trustees
Initially, when trusts become effective, trustees must take specific steps to begin managing the trust. For example, they must locate trust documents and secure trust assets. Next, they must determine the identity and locations of all beneficiaries who will inherit trust assets by the terms of the trust. A trustee also must identify valid creditors and debts and ensure that they are paid. Finally, they must distribute trust assets to the beneficiaries named in the trust.
Trustees as Fiduciaries
From a legal perspective, trustees are “fiduciaries,” which means that they must legally act in good faith to follow the trust provisions and take all actions necessary to benefit the beneficiaries. California’s Probate Code outlines the fiduciary duties of a trustee and specifies how they should handle different circumstances. For instance, trustees must generally follow the terms of the trust, as written by the settlor. If there is more than one beneficiary, the trustee must treat each beneficiary in the same impartial manner. The trustee must never use the assets of the trust for his or her own profit or benefit or commingle with his or her actions. They also must keep accurate records of any transactions involving trust assets.
More specifically, state law requires trustees to provide complete accounting of the trust assets, liabilities, and transactions at least on an annual basis, as well as when a trust terminates and when a change in trustee occurs. Trustees must provide comprehensive accountings to various parties, including beneficiaries, as well as advise them that they have the right to contest the accounting within three years of its receipt.
Court Intervention in Trustee Duties
Although court involvement with trusts is not typical, one example in which courts may become involved in trust administration is when beneficiaries or others accuse trustees of violating their fiduciary duties. For example, a beneficiary can challenge an accounting by filing a court action. A beneficiary or other party also may allege other types of misconduct on behalf of a trustee, such as commingling trust assets with their personal assets or misusing trust assets for their own benefit.
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