Trustees have fiduciary duties in administering trusts. These duties arise from state law, including statutes and court cases. Fiduciary duties help ensure that a trustee best manages assets for the benefit of the trust’s beneficiaries.
The duty of care requires trustees to use reasonable care, skill, and diligence in administering and investing trust assets. Closely tied to the duty of care is the duty to prudently invest trust assets, which will be discussed in a future article. All trustees must understand and use prudent investment strategies, but any trustee who holds himself out as having particular investment or asset management expertise will be held to a higher standard by the courts.
The duty of loyalty requires the trustee to keep the beneficiaries’ best interests in mind. Trustees may not place their own interests or those of third parties ahead of beneficiaries’ interests when managing the trust. Trustees may not engage in self-dealing related to the trust. For example, they cannot mingle trust and personal assets, borrow from the trust, sell trust assets to themselves, invest trust assets in their own business, or have the trust purchase goods or services from the trustee (except trust administration services permitted by law). The law also prohibits similar transactions between the trust and the trustee’s family members. It does not matter if the transaction is for fair value or if the trust asset has been appraised.
Trustees may delegate administrative functions to suitable professionals, but delegation does not remove trustee liability for those professionals’ actions on behalf of the trust. Family member trustees often hire lawyers, accountants, and investment advisers to assist them in managing a trust.
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