Trustees operate at some of the highest fiduciary levels under the law. Their job is usually to protect and grow assets for the benefit of the “beneficiaries” – those who the trust is designed to benefit, or those for whom the trust was set up to benefit. Trusts typically arise in several contexts. One, where a trust is set up for a young person, or a minor, to provide money and resources for them during their youth while at the same time allowing a wiser financial person to maintain the money. Another example is where a person dies, and he or she puts his or her assets in a trust for the benefit of her children or family, for instance, to provide extra money for them during their lifetimes. Sometimes trusts are created during a person’s lifetime for the benefit of that person and/or another. Often there are tax reasons that cause people to create trusts. The intention is good – to provide income to the family or to the child, for instance.
Sometimes there are two types of beneficiaries in a trust. There can be an income beneficiary and a remainder beneficiary, or multiples of each. Income beneficiaries are typically people that receive income, and occasionally principal, from the trust while the trust is ongoing. Remainder beneficiaries get the principal, and occasionally income, from the trust when it ends. Sometimes there can be conflict between these two types of beneficiaries (as one wants more income distributed, and the other wants the income held so that there is more when the trust ends).
Trustees can either be appointed through the document setting up a trust and/or by a Court, for instance. Trustees have a duty to put a beneficiary’s interests above their own. But large amounts of money and property sometimes bring out bring out bad behavior. Note that trustees are often allowed a reasonable amount of compensation to administer the trust. But whenever the person administering the trust for the benefit of the beneficiaries is also the person paying himself or herself, sometimes there are problems.
One problem is through excessive fees. Unless the terms of the trust describe the amount to be paid to the trustee, a “reasonable” amount is allowed, and often this is somewhat discretionary, right or wrong. But a trustee owes duties of care and loyalty to the trust beneficiaries so as to not enrich himself or herself against the trust’s interests. Excessive fees are a breach of fiduciary duty. Excessive fees can sometimes be through excessive percentage amounts, such as an excessive trustee fee of a percentage value of the assets of the trust, or they can be excessive through hourly or other per-expense charges. They can also be excessive through a trustee incurring charges for others to form services under the trust. For instance, a trustee is charging their fee and is charging additional fees by others that become excessive when all of the fees are accumulated.
Trustees also cannot self-deal. They cannot make deals with trust assets that benefit themselves over the trust. For instance, if the trust has a piece of real estate in it, and that piece of real estate is worth $100,000, the trustee should not sell that piece of real estate to herself for $10,000. The job of the trustee is to benefit the trust – not to enrich the trustee. Generally, without specific trust authorizations, a trustee cannot loan money to himself or herself out of trust funds, may not buy or sell trust property to himself or herself, or sell trust property to another trust that the trustee manages.
Sometimes trustees can also be beneficiaries. For instance, if mom dies, she leaves a trust for the benefit of her three children and makes one of the three children the trustee. The fact that the trustee is also a beneficiary does not change the trustee’s obligations to the other beneficiaries.
Poor investments are also an area of trouble for some trustees. A trustee managing assets to preserve and/or grow them should be making responsible investments as opposed to irresponsible ones. If a trustee makes poor investment decisions that costs a trust money, that trustee can be liable for those decisions.
Another area of trouble for some trustees is failing to provide information. Generally, a trustee has a duty to disclose all known material facts that could affect a beneficiary’s rights. Sometimes a trustee is required to disclose information irrespective of whether the beneficiary asks for it, and sometimes a trustee is required to disclose information in response to a specific request for it. These depend on the facts and the requests, but generally know that there is a fairly-broad requirement of disclosure by trustees. Trustees also need to keep proper accounts and has a duty to provide that accounting information to the beneficiaries. Trustees also need to allow access to the books and records of the trust if requested by the beneficiaries.
Ultimately, as a beneficiary, you want to make sure that you have all the necessary documents and make sure you are reviewing how the trust is doing. If you have concerns as a beneficiary of a trust that the trustee is not behaving properly, I am a fiduciary fraud lawyer that can help. Or if you are a trustee that is accused of behaving improperly, and those accusations are unfounded, I am a fiduciary fraud lawyer that can help.