Law Office of Richard M. Russell
197 Palmer Avenue
Falmouth, Massachusetts 02540
508.457.7557

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SITE DIRECTORY

Serving as a Trustee

If you have been named as a trustee (or if you are contemplating naming a trustee), the following discussion may help you better understand the role of a trustee.

What is a Trust: A trust is a management device. A trust is frequently implemented when one desires to leave property (usually upon his or her passing) to certain persons but have that property managed by someone else. For instance, one leaving property to young adults might desire that a more experienced adult manage the property. The manager is referred to as a “trustee.” Frequently, the person leaving property (referred to as the “settlor” or “donor”) will provide detailed instructions (in a trust document) as to how the property should be marshaled. The persons for whom the property is to be managed are referred to as “beneficiaries.”

A trustee should be aware of the following:

Notice of Assumption of Role of Trustee: One accepting the role of trustee is expected, within 30 days of acceptance, to provide to interested persons notice of the trustee’s acceptance of the role and the trustee’s contact information. 

Duties of Trustee: Like a personal representative, a trustee must identify and collect trust property, protect the property, pay expenses of trust administration and creditor claims, and distribute trust property to those entitled. For elaboration on these subjects, see Serving as a Personal Representative at https://www.falmouthestateplanning.com/p/serving-as-personal- representative.html

Management of Trust Assets: A trustee is expected to exercise reasonable care and skill in managing trust property. A trustee is personally liable for any losses sustained by the trust due to his or her failure to exercise reasonable care.

The following paragraphs elaborate on the trustee’s duty with respect to managing trust property. Note, however, that frequently trust property is to be distributed “upon the Settlor’s death.” Thus, trust assets that might be distributed relatively promptly (particularly if the role of trustee is occasioned by the death of the settlor) probably should be managed as discussed in the above link, for instance, not submitted to excessive time deposits or the like (and certainly not placed in speculative investments).

With respect to property to be retained in trust (for instance, for a minor or disabled beneficiary), the general rule applicable to a trustee who is not a professional trustee is that the trustee, in managing the trust, must exercise the care and skill of an ordinary prudent person. While the trust document itself may permit of a lesser standard, it would be wise to adhere to this “ordinary prudent person” standard.

Management and investment decisions should be made in consideration of the purposes and circumstances of the trust. Such considerations may include other resources of the beneficiaries, the propriety of  preserving trust property (for education expenses, for instance), general economic conditions, and possible effects of inflation or deflation. If trust property includes investments, ordinarily a trustee should reasonably diversify the trust’s investments. In most circumstances, a trustee may seek competent investment advice, provided reasonable care is exercised in selecting an advisor. 

Exculpatory Clause: Many trusts include so-called exculpatory clauses. These clauses relieve a trustee of losses to the trust if the trustee has acted in good faith (but nevertheless causes the trust to suffer a loss). Exculpatory clauses are intended to encourage persons to accept the role of trustee by avoiding concerns that beneficiaries may seek to hold the trustee responsible for good-faith, yet unsuccessful decisions. After all, one asking another to serve as trustee is asking the trustee to devote time and consideration on behalf of others believed to be in need of such oversight and decision-making. Subjecting the trustee to personal liability in accepting that role makes less likely that others will be willing to serve as trustee--perhaps defeating the effort to establish a trust. In any event, when acting for the trust, a trustee should make him- or herself aware of the relevant facts and circumstances existing at the time of the trustee’s action. 

Trust Distributions: The trust document may provide that distributions to beneficiaries are to be mandatory or discretionary. Mandatory distributions might be in the nature, for instance, of regular periodic payments. Discretionary distributions usually require a trustee to exercise some judgment. When a trustee makes a discretionary distributions, the trustee should document the circumstances and the reasons for the distribution(s).

Trust Accounting: The general laws require a trustee to provide beneficiaries with an account of trust activities upon request at least annually and at the termination of the trust. The account of trust activities need not be formal but is to include information about trust property, liabilities, receipts, and disbursements, including the amount of the trustee’s compensation. To the extent a trust document permits a lesser standard of accounting, probably the trust document controls, though careful consideration should be given before relying upon the lesser obligation. 

Tax Advice and Tax Filings: A trustee should consult suitable professionals to obtain appropriate tax and trust accounting advice.

Record Keeping: A trustee should keep accurate records of all trust activities, including assets, receipts, and payments. Along with documenting discretionary disbursements (as discussed above), a trustee should keep accurate records of his or her activities as trustee and the time spent engaged in those activities.