Duties of trustee: Overview, definition, and example
What are the duties of a trustee?
The duties of a trustee are the legal and ethical responsibilities that a trustee (the person or entity entrusted with managing assets on behalf of beneficiaries) must fulfill in managing a trust. These duties are designed to ensure that the trustee acts in the best interest of the beneficiaries and in accordance with the terms of the trust agreement. The primary duties of a trustee typically include the duty of loyalty, duty of care, duty of impartiality, duty to administer the trust in accordance with its terms, and duty to keep accurate records and provide information to the beneficiaries.
For example, a trustee managing a family trust must act in the best interest of the beneficiaries and ensure that the trust's assets are invested prudently, following the guidelines outlined in the trust document.
Why are the duties of a trustee important?
The duties of a trustee are important because they ensure that the trustee manages the trust assets responsibly and in a way that upholds the legal and fiduciary obligations of the trust. By adhering to these duties, the trustee protects the interests of the beneficiaries, maintains the integrity of the trust, and ensures that the trustee’s actions are transparent and accountable. Failure to fulfill these duties can lead to legal consequences, including personal liability for losses incurred due to breach of trust.
For businesses, understanding and clearly defining the duties of a trustee helps ensure that the trust operates effectively, and that the trustee acts within legal boundaries while managing assets.
Understanding the duties of a trustee through an example
Imagine a trustee managing a charitable trust. The trustee has the responsibility to invest the trust’s assets wisely to generate income for the charity, act impartially when distributing funds, and ensure that all actions taken are in line with the trust’s mission. If the trustee invests in risky ventures that jeopardize the trust's funds or favors one beneficiary over another, they could be held liable for breaching their duties.
In another example, a family member serves as the trustee for a family trust. This trustee is tasked with ensuring that the trust’s assets are distributed according to the wishes of the deceased family member and in the best interests of the beneficiaries. The trustee must keep accurate records, communicate effectively with the beneficiaries, and manage the trust assets prudently.
An example of a duties of trustee clause
Here’s how a duties of trustee clause might look in a trust agreement:
*“The Trustee agrees to perform the following duties: (i) Act in the best interest of the Beneficiaries, exercising reasonable care, skill, and caution in managing the Trust’s assets; (ii) Administer the Trust in accordance with its terms and applicable law, ensuring compliance with all fiduciary duties and obligations; (iii) Keep accurate and complete records of all Trust transactions and provide periodic statements to the Beneficiaries; and (iv) Treat all Beneficiaries impartially, ensuring fair treatment unless otherwise directed by the Trust document.”*
Conclusion
The duties of a trustee are essential for the proper administration of a trust and for ensuring that the trustee acts in good faith, responsibly managing trust assets and fulfilling the trust's purpose. These duties protect both the trustee and the beneficiaries, maintaining the trust's integrity and ensuring that its terms are followed.
By clearly defining the trustee’s duties in the trust document, businesses and individuals can help prevent misunderstandings and legal disputes, ensuring that the trust is managed effectively and in compliance with applicable laws.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.