What Does the Trustee Have to Do in Living Trust States?
Trustees are caretakers of assets in a trust. The trustee makes decisions on how to invest and distribute the assets, and pays all applicable debts and taxes on trust property. Each state has its own laws detailing general trustee duties, and the trust itself may create more specific duties. Anyone with questions about trustee duties for a specific trust should seek professional counsel.
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Trust Structure
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When an individual -- the "settlor" -- creates a living trust, he transfers legal title to the trust assets to the trustee. However, the trustee does not get to do whatever he wants with these assets. The trustee holds legal title, but the trust beneficiaries hold equitable title: the right to enjoy the benefits of the trust assets. The trustee's general duty is to manage the assets in a way that will benefit the beneficiaries. A trustee has a fiduciary duty to the beneficiaries; he must act with strict integrity and honesty, and cannot use the trust property to benefit himself.
Trust Document Duties
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Each trust requires different things from a trustee. The specific language in the trust may grant a trustee a great deal of latitude in the manner in which he administers the trust, or it may give the trustee very specific instructions, particularly in the matter of how to distribute trust assets to the beneficiaries. In the latter case, a trustee's duties may consist of more or less simply following instructions. Trustees must always follow any specific directions given to them in the trust. However, even with such specific directions, each trustee has certain general legal duties.
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Earmarking and Accounting
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Although the trustee is the legal owner of the trust property, he may not treat the trust property as his own. Trustees must keep the trust property entirely segregated from their own property, and must also "earmark" the property by holding the property in the actual name of the trust. Many states have enacted statutes that allow beneficiaries to hold the trustee personally liable when a failure to earmark damages the value of the trust. At any time, a trustee may need to present an accounting of the trust property upon request by a beneficary.
Investment and Delegation
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Trustees cannot just hold the property; unless the trust itself says otherwise, the trustee has a duty to make the property grow via prudent investment. Every state has its own law defining this prudent investment. Common-law states find investment prudent if a "reasonable person" in the trustee's shoes would have taken the same action. Other states follow specific lists of types of investment considered "prudent." In making decisions regarding the trust, the trustee can receive advise and counsel from qualified advisors, but he must make the important decisions regarding the trust himself; he cannot delegate that duty to others.
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References
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