Trustee Duty Of Loyalty
You have probably heard the word trustee mentioned several times in situations where trusts are being discussed. Or maybe you have been appointed as a trustee or successor of a trustee, but you do not really know what the word means. A trustee is a person or firm that administers property or assets for the benefit of a third party.
Sometimes the trustee is called a fiduciary of the trust because a trustee owes “fiduciary duties” to the third party that benefits from that trust.
What Are Fiduciary Duties?
A person that has fiduciary duty to a third party must act in a way that benefits that third party. The following are fiduciary duties a trustee owes a third party:
- Duty of Loyalty: A trustee must administer the trust in the interest of the trust beneficiaries. The trustee cannot use the assets in the trust for personal benefit.
- Duty of Full Disclosure: A trustee must disclose to the trust beneficiaries all of the facts and circumstances concerning the trust. The goal here is to keep beneficiaries fully informed about the trust.
- Duty of administering the trust efficiently: A trustee must know all the terms of the trust and the beneficiaries of the trust. The trustee must manage the trust efficiently taking into account the terms of the trust and the interests of the beneficiaries.
- Duty to exercise reasonable discretion: Most trusts give the trustee the ability to exercise discretion when investing trust property, distributing to beneficiaries, hiring financial advisers, hiring lawyers, managing assets and more.
Important Principles For A Trustee
A trustee must remember that assets in the trust do not belong to the trustee which means the trustee must not use the assets for their own benefit. It also means that the trustee must not mix trust assets with their own assets. For example, a trustee must not deposit their own money into the trust’s checking account.
You can only use the trust assets if the terms of the trust allow it. Another principle is to not favor any of the beneficiaries of the trust. Treat them according to the terms of the trust even if you do not like them.
Trustees must also keep accurate records and report to the beneficiaries of the trust. They should avoid investing the assets in a manner that would put the trust at great risk.
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When The Grantor is Incapacitated
Some people create trusts so that someone else can take charge of their affairs when they are incapacitated. These kinds of trusts are called living trusts or revocable living trusts. People create these trusts to avoid a situation where people start fighting over who is qualified to manage their wealth when they become incapacitated.
With a living trust, you can pick a trustee to take up the responsibility of managing your trust when you are no longer able to carry out those responsibilities. The trustee will have the following responsibilities:
- Make sure that you and any dependants are taken care of
- Hire advisors to help manage assets in your trust
- Make sure to apply for your disability benefits
- Transact business on your behalf and more
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