Trustee’s Roles & Duties
Probate Code §16000 et seq. list specific duties of a trustee. In particular, Probate Code §16040 states that a trustee has the duty to:
…administer the trust with reasonable care, skill, and caution under the circumstances then prevailing that a prudent person acting in a like capacity would use in the conduct of an enterprise of like character and with like aims to accomplish the purposes of the trust as determined from the trust instrument.
In other words, the trustee must administer the trust in the same manner that they would in managing their own affairs. Trustees should understand that failure to exercise the requisite standard of care in administering the trust may lead to liability. California Probate Code §16400 provides that a violation of any duty that the trustee owes a beneficiary is a breach of trust. The trustee is a fiduciary in the eyes of the law and even well-intentioned actions may result in liability.
It is important for the trustee to review the trust and identify the pertinent provisions. The trustee should be fully aware of the trust terms, including what kinds of distributions can be made, whether subtrusts are created and how they are to be funded, whether accountings are required, and the powers granted to the trustee. If the instrument is silent on some matters, the Probate Code and common law will fill in the gaps.
Basics of Administration
Notice: One of the first things the trustee will have to do is notify the beneficiaries and intestate heirs within sixty days of the trust becoming irrevocable. Irrevocability can result not only from the death of the surviving settlor but also from the incapacity of the settlor. Also, it is important to follow all of the requirements for the “trust contest warning” in the notice because it commences the 120-day statute of limitations period to contest the trust. The trustee does not need to send a copy of the trust to the beneficiaries with the notice, but must provide it if a beneficiary requests it.
Accountings: Many trusts waive accountings by the trustee. However, if a trustee is required to provide one, then California Probate Code requires that it include:
- A statement of receipts and disbursements of principal and income;
- A statement of the assets and liabilities of the trust;
- The trustee’s compensation;
- The agents hired by the trustee, their relationship to the trustee, if any, and their compensation;
- A statement that the recipient of the account may petition the court to obtain a court review of the account and of the acts of the trustee; and
- A statement that claims against the trustee for breach of trust may not be made after the expiration of three years from the date the beneficiary receives an account.
Investing the trust assets: This can but does not have to be a troublesome area. The trustee should understand the full extent of his investment powers by examining the trust instrument and consulting the Probate Code. The trustee is obligated to invest and manage the trust assets as a prudent investor would. This includes minimizing risk by diversifying the portfolio; selling unprofitable assets; making the property productive; and avoiding self-dealing. In some cases, it may be best to hire a professional investment adviser or financial manager.
Fees for trustees: Trustee compensation is governed by the trust instrument. If the trust is silent on this issue, the California Probate Code provides that the trustee is entitled to “reasonable compensation.” When a court must approve compensation of a trustee, it looks at the gross income of the trust, how well the trust is being administered, and the time spent by the trustee.
As you can see from this article discussing the basics of trust administration, it can be complicated and daunting. Norbert U. Frost has extensive experience assisting families and trustees administering trusts to carry out the wishes and intent of the settlor, the person who established the trust.
Call (707) 553-7356 or fill out the form on our Contact page to schedule your consultation.