Who to choose as Trustee?

Obviously when choosing a person to serve as Trustee, that person should be someone you trust.  Given the responsibilities of a Trustee, such as the management and investment of Trust assets, the individual chosen should have the experience necessary to perform those duties.

Since Courts generally do not oversee the administration of Revocable Living Trusts, unless the Trust provides for such oversight, you should consider appointing another individual or entity to serve as “Trust Protector”. For example, your Trust could provide that your Trustee is obligated to provide to a Trust Protector, a Trust account statement setting forth the current balance in that account and the additions and deductions from the Trust account, for example,  every three months or semi-annually.

Individuals who do not have a trusted family member or friend, or someone they feel is competent to manage Trust assets may consider appointing an institution such as a bank Trust Department as Trustee. Under the law however, institutional Trustees are entitled to commissions calculated at a higher commission rate than that permitted to be paid to individual Trustees.  

Maryland law specifies the duties and powers which Trustees are obligated to perform.  First and foremost, a Trustee must abide by Maryland law. Secondly, the Trustee is required to carry out the terms of the Trust Agreement. Therefore it is important that prior to appointment, and most definitely after appointment, a Trustee should thoroughly review the provisions of the Trust Agreement and implicitly follow it’s provisions.

A Trustee also owes a duty of loyalty to the beneficiaries. That is, the Trustee is serving for the benefit of the beneficiaries and not for themselves. Accordingly, a Trustee should not enter into any transaction that gives the Trustee an opportunity to benefit themselves at all.  If a situation should arise in which there is a conflict of interest between the Trustee’s personal interests and those of any beneficiary, the Trustee should put the interests of the Trust and beneficiaries first. For example, a Trustee should never lend Trust funds to themselves nor should they sell Trust property to themselves because that would be a conflict of interest.

A Trustee is required to deal with Trust property as a prudent person would deal with the property of third parties. That is, the actions of the Trustee will be judged against what a reasonable person would have done under similar circumstances with the same information at their disposal. Accordingly, if a Trustee conducts themselves properly, they should not be faulted if something bad happens, such as a decline in the value of Trust assets. Of course, as noted above, Trustees should avail themselves of the expertise of financial planners and other professional whenever managing Trust assets.

A Trustee should not delegate the duties and responsibilities that have been assigned to them under the Trust. The Settlor who created the Trust choose the Trustee to administer the Trust given the Trustee’s truthfulness and experience. Therefore unless the Trust clearly states that a Trustee may do so, a Trustee should not turn over complete administration of a Trust to others. This does not mean that a Trustee must perform all administrative tasks themselves.  Trust Agreements generally permit a Trustee to delegate some administrative tasks to individuals or institutions whom they trust will perform the tasks assigned properly. But since the Trustee is ultimately responsible for the administration of the Trust they should carefully choose the person or entity they delegate such administrative tasks to.

A Trustee is obligated to preserve and protect Trust assets. For example, if a vacant house is a Trust asset, the Trustee needs to obtain the appropriate insurance coverage for that house so that if it is destroyed by fire, insurance coverage will provide the necessary funds to repair that dwelling.

Usually Trust agreements provide that the Trustee must provide an accounting of the Trust assets to the beneficiaries, a duty which must be complied with. Furthermore,  a Trustee may also be required to report to a Trust Protector, if the Trust Agreement requires that they must do so.

As noted above, a Trustee owes a fiduciary duty to the Settlor and the beneficiaries. The Trustee may not commingled Trust assets with their own assets. Accordingly, a Trustee should have a separate bank account or accounts titled in the name of the Trust, and should not put any Trust assets or income into their personal account.

Finally, and of utmost importance, if a question arises as to the administration of a Trust, a Trustee should consult with an attorney for clear answers as to how to proceed. Making assumptions or uninformed decisions could support the claim by a beneficiary or beneficiaries of a Trust that the Trustee breached their fiduciary duty and expose the Trustee to personal liability.

Presented By Valerie Rocco, in course entitled “Creating a Revocable Trust” presented on October 18, 2012, at Anne Arundel Community College.