Living Trust Duties
There are three parties to a typical living trust: the settlor, who places his assets in the trust; the beneficiary, who has the legal right to receive the benefit of those trust assets; and the trustee, who takes care of the assets and safeguards them on the beneficiary's behalf. Once the trust is created, the trustee is typically the party with numerous legal duties; the other two parties have little involvement. Those with specific questions about trust duties should consult an attorney.
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Living Trusts
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Living trusts (also known as inter vivos trusts) come into existence when a settlor decides, during his lifetime, to place his assets in trust. He transfers his property to a trustee, who will hold title. But the trustee only holds legal title; the equitable title to the property (meaning, the right to enjoy its profits and benefits) is held by the beneficiary. The trustee is bound to manage the property and distribute it to the beneficiary in the exact manner described by the trust (although certain trusts give the trustee broad discretion). A trustee's other duties may vary slightly by jurisdiction, but certain duties are typical in every state.
Financial Management
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Once the trustee takes title to the settlor's property, the trustee is then legally obligated to manage the property prudently. He must make good financial decisions designed to avoid loss and make the original trust property increase. States vary in their definitions of "prudent management"; some states stipulate forms of prudent investment, while others simply measure the trustee's actions against those of a theoretical "reasonable person" faced with the same decisions. If the trustee fails to meet this standard and causes a loss to the trust, most jurisdictions will require him to pay back the difference.
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Personal Involvement
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When a trust agreement stipulates a particular trustee and does not expressly give him the right to delegate his duties to any other party, the trustee then has a legal obligation to manage the trust himself. He cannot pass his duties on to another party unless he is actually incapable, for physical or mental reasons, of performing those duties. This rule does not preclude the trustee from asking advice from experts or other qualified parties; he simply may not allow other parties to make the decisions his commitment requires him to make.
Earmarking and Accounting
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A trustee also owes complete loyalty to the trust and may not use the trust or its assets in any way to benefit himself, even if those actions also benefit the trust. To this end, trustees are required to "earmark" the trust property, meaning keep the property entirely separated and insulated from their own property, and be sure that the trust property is held in the name of the trust at all times. Beneficiaries also have a continuous right to demand that the trustee account for the trust assets at any time (a full accounting, including income, expenses, and distributions to the beneficiary).
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