Watch Your Language: Trustee

Orange City Iowa Estate Planning

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Loyal. Impartial. Reasonable. Careful. That's what it means to be a Trustee.

A trustee has legal title to assets subject to certain conditions and requirements that are spelled out in the trust document. [Read More]

Black’s Law Dictionary defines “trustee” as: “One who, having legal title to property, holds in in trust for the benefit of another and owes a fiduciary duty to that beneficiary.”

The beneficiary is the third point on our “trust triangle,” and we’ll talk about them next week. For now, let’s unpack the definition of “trustee” a bit.

A trustee has legal title to assets subject to certain conditions and requirements that are spelled out in the trust document. Many of these conditions and requirements are unique to the intent of the grantor, but there are certain duties – called fiduciary duties – that they must meet.

This fiduciary duty can be broken down into four basic parts: loyalty, impartiality, reasonability, and carefulness.

Loyal

The grantor is the one who usually appoints the trustee.  Therefore, they must show loyalty to the grantor by agreeing to follow the grantor’s rules and instructions for handling the trust assets. They also must always follow the trust’s terms (as long as the trust’s terms are not illegal!).

But the trustee must be loyal to the beneficiaries as well. This means that they generally may not take an action using trust assets that would be a conflict of interest.

Impartial

Often, loyalty gets tangled up with impartiality. Many trusts have multiple beneficiaries, so the trustee must manage the trust in a way that does not “play favorites” among the beneficiaries. If the trust doesn’t say otherwise, all the beneficiaries should get the same treatment from the trustee.

This can get tricky when the trustee is also one of the beneficiaries. Who are they loyal to? If a trust transaction would benefit everyone, but could benefit the trustee more, they must be extremely careful about violating both the duty of loyalty and the duty of impartiality.

Reasonable

The law requires that every trustee manage the trust assets according to the “Prudent Investor Rule.” That rule is the subject of semester-long classes in law school, so this article can’t possibly explain all the nuances. Suffice it to say that the trustee must invest in a way that makes sense for the beneficiaries.

Careful

In light of the sensible investment requirement, it seems like it should go without saying that the trustee must take care of trust assets, but that is the fourth in the list of duties. The term “waste” has specific legal meaning (hint: it’s mostly what it sounds like; it is vital for the trustee to avoid depleting the trust assets through mismanagement and waste).

Conclusion

To pull it all back together, the job of trustee is extremely important. As the second point of the “trust triangle,” the right trustee is critical to the successful and effective operation of any trust. They are the manager and protector of trust assets and they look out for the best interests of all of the beneficiaries in all decisions, not just some of the beneficiaries or some of the time.

Selecting the right trustee can be just as challenging as being one. If you’re looking for help setting up your trust or are struggling with the responsibilities of the job, give us a call at (712) 737-3885 to learn how we can help!

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