Video Transcript
Hi folks, thanks for stopping by.
Today I’d like to talk with you about some of the fiduciary duties of trustees.
Many books have been written regarding the fiduciary duties of trustees. Law school classes focus on fiduciary duties of trustees. When the trustees fail to adhere to their fiduciary duties they put themselves potentially in a position of possibly having to defend a breach of fiduciary duty lawsuit.
Missouri has adopted its version of the Uniform Trust Code. In states that have adopted the UTC, there is typically a state statute setting forth the requirements to create a trust.
To create a valid trust in MO, the settlor must have the capacity to create a trust, the settlor must indicate an intention to create a trust, and if the trust is a non-charitable trust, which for most people is a living trust, the trust must have a definite beneficiary, the trustee must have duties to perform and the same person cannot be the sole trustee and sole beneficiary.
I would like to focus my comments today on the trustee’s duties. As I mentioned, there are a myriad of sources that discuss trustees duties. I will only focus today on some basic duties of trustees.
Once a valid trust has been created there are typically five duties imposed upon a trustee.
In no particular order, the first duty imposed upon trustees is the duty of loyalty. The MO statute states in part, a trustee shall administer the trust solely in the interests of the beneficiaries. I chose the duty of loyalty as the first duty to discuss today because it is such a well known and probably the most fundamental duty of the trustee.
The trustee has a duty of loyalty to the beneficiaries of the trust regarding the trust property. A trustee cannot place his or her personal interests above those of the beneficiaries. For example, a trustee might breach his duty of loyalty to the beneficiaries by buying property from the trust for himself. Or a trustee might breach his duty of loyalty if he had a duty to buy a specific piece of property for the trust and decided to buy that property for himself.
The trustee cannot allow his personal interests to compete with those of the beneficiaries of the trust. The trustee who has an adverse interest and has breached his duty to the beneficiaries usually will have to resign.
Some states, like MO, have a statute that typically would allow the trustee not to be liable for breach of a fiduciary duty if the breach were disclosed to the beneficiaries; the beneficiaries consent to the conduct constituting the breach, release the trustee from the liability for the breach or ratify the transaction, which constituted the breach.
The second duty imposed upon trustees is the duty to be prudent. MO’s statute states, that a trustee shall administer the trust as a prudent person would, by considering the purposes, terms, distribution requirements, and other circumstances of the trust. In satisfying this standard, the trustee shall exercise reasonable care, skill and caution.
Again, the duty of prudence is one of the fundamental duties of a trustee. A trustee’s action or inaction will not be judged in hindsight but, as stated above, by considering the purposes, terms, distribution requirements and other circumstances of the trust.
The third duty that is imposed upon a trustee after a trust has been validly created is the duty to act and carry out, or administer, the terms of the trust.
Mo’s statute states in part, upon acceptance of a trusteeship, the trustee shall administer the trust in good faith, in accordance with its terms and purposes and the interests of the beneficiaries. Trustees do not have a duty to accept a trusteeship. The trustee named in the document can decline to serve. If however the trustee accepts the trusteeship, the trustee has a duty to administer the trust diligently. The trustee must read the governing trust instrument and carry out the intentions of the settlor as expressed in the document.
The fourth duty imposed upon trustees of a validly created trust is the duty to give personal attention to the trust. The trustees relationship with the beneficiaries is s personal one, the entire administration of the trust cannot be delegated. MO does allow however, a trustee to delegate to an agent duties and powers that a prudent trustee of comparable skills could properly delegate under the circumstances. The ability to delegate to an agent is derived from the Uniform Prudent investor Act. One of my upcoming videos will discuss the investment duties of a trustee in more detail and the influence of the Uniform Prudent Investor Act in the investment duties of trustees.
The last duty of a trustee that I wanted to discuss with you today is the duty to account to the beneficiaries. The trustee’s duty to account to the beneficiaries is a fundamental feature of the trust relationship. The duty to account encompasses a broad array of obligations imposed upon the trustee. For instance the trustee has a duty to keep records of the administration of the trust. Additionally, the trust property must be kept separate from the trustees own personal property.
An interesting and controversial duty imposed upon trustees in MO is the duty to inform and report to the beneficiaries at least annually and provide a report of the trust property, liabilities, receipts, disbursements, including the source and amount of the trustee’s compensation, a listing of the trust assets and their respective market value.
The concept of providing all available information to the beneficiary is to allow the beneficiary to protect his or her interests.
There are many duties imposed upon trustees. I have only attempted to scratch the surface with you today.
If you have questions about the duties of a trustee, or if you are serving as a trustee, please feel free to call our office to schedule a time with us to discuss your concerns.
Thanks for stopping by.
