Trustees and Their Duties
Choosing the right trustee is essential to the success of your estate plan. Whether you are considering whom to appoint as your trustee or you are about to take on the role yourself, you should know just what’s involved.
What is a Trustee?
A trustee is responsible for carrying out the terms of a trust. They are appointed by the individual (settlor or testator) who establishes the trust through a Will or trust deed. In a trust, the trustee is the legal owner of the trust property, but the beneficial interest belongs to others. It is to those ‘others’ that the trustee owes and must exercise special duties.
Duties of a Trustee
While it is not uncommon to appoint the same individual(s) or entity (trust company) as both executor and trustee, the roles are quite distinct. The roles differ in both what is involved and the skills required.
Much has been written about executor duties and checklists, worksheets and other tools abound. When discussing the duties of a trustee, the focus shifts from a laundry list of tasks (secure estate assets, apply for probate, cancel subscriptions, obtain appropriate insurance, prepare and file tax returns etc.) to the overarching duties and obligations inherent in the role.
There are four fundamental fiduciary duties that govern all aspects of trust management and administration. All trustees – whether lay individual or professional – are subject to these core duties.
The Fundamental Duties
The Duty of Loyalty
A trustee may not allow personal interests to conflict with duties to the beneficiary. The prohibition on the purchase of trust property by a trustee is based on this duty.
The Duty of Care
A trustee must act prudently and with reasonable care.
The Duty of Even-Handedness
Each beneficiary should receive exactly what they are entitled to, no more and no less. Moreover, no one beneficiary or class of beneficiaries may be favoured. Pursuant to this rule, when investing trust property, the trustee must aim for impartiality between the competing interests of income and capital beneficiaries.
The Duty Not To Delegate
While historically this duty was absolute, a trustee is no longer required to personally discharge all duties. The law has evolved so that it is now permissible for a trustee to delegate administrative duties. With some exceptions – trust investing for example – duties involving discretion, may not generally be delegated. Moreover, where discretion is permissible, the trustee must nonetheless exercise care and prudence in the choice of agent and in overseeing their efforts.
Breach of Trust
A failure to properly discharge the duties inherent in the role of trustee may constitute what is termed a ‘breach of trust’. A breach of trust may be defined as a failure (whether by omission or commission) by the trustee to properly carry out the provisions of the trust agreement and governing law. A breach of trust resulting in a loss may impose personal liability on the trustee.
Making an informed decision
Before deciding on your trustee, or before agreeing to assume the role yourself, make sure you understand the various duties and responsibilities involved. Choosing the right trustee can be key to an effective estate plan.