When creating a trust, the person creating the trust, who is also called the grantor, should carefully consider the choice of a trustee. This will be the person or entity designated to manage the trust and distribute assets upon the death of the grantor or some other triggering event. Often a grantor will choose a family member, friend or other entity such as a bank to become the trustee of the trust. In some cases, multiple trustees can be chosen, and these individuals will be expected to act together to safeguard the trust and distribute all assets pursuant to the trust terms. The trustee has responsibilities as well as potential liabilities, and it is crucial for the grantor to select a trustee who understands the role and can honor the grantor’s wishes while also protecting the trust assets.
After a trust is created, all assets will need to be titled to the trust and managed by the trustee. A trustee has much responsibility in managing the trust and can be liable for breach of fiduciary duty which includes failure to safeguard the trust by conservatively managing the growth of assets and failure to manage the trust for the sole benefit of the beneficiaries. Managing trust assets should include choosing investments which best allow for the growth of the assets while minimizing overall risk. The laws related to managing the growth of assets require the trustee to consider the purpose, term and even the distribution requirements of the trust. A breach of fiduciary duty can include unwise or risky investments that drain a trust designed to care for the grantor and to provide a distribution of assets later on to the beneficiaries.
The trustee should understand trust assets are always to remain separate from the trustee’s personal accounts. None of the assets may be mixed. This is to protect the assets for the beneficiaries. A trustee also should not favor one beneficiary over others as the purpose of the trust is to make sure the assets are distributed as designated in the trust. No special treatment or additional payments should be given to any beneficiary unless so specified in the trust document.
The trustee needs to avoid using the trust for personal gain. The trustee should keep careful records regarding the trust activities in order to show prudent management of trust assets. The beneficiaries of the trust may sue a trustee if he or she breaches the duties of trustee.
For a grantor, choosing a trustee is an important decision. For a trustee, the responsibilities of managing a trust should be understood as well as the personal liabilities. A trust can provide for the grantor and beneficiaries; it is the trustee’s responsibility to make sure all the decisions in managing the trust benefit these individuals.
We will explain, as part of our overall comprehensive estate planning, how trusts work and how they can benefit you and your loved ones. Call 856-324-1009 for a consultation with an experienced estate planning attorney at Bratton Law.