Estate & Probate

The creation of a Trust, whether it is during a person’s life or in their Will is a relatively straightforward process that may be designed to achieve any number of beneficial purposes ranging from tax savings to protecting the rights of minor children. Most of the time the Trust Agreement or Will is drafted by a lawyer. Unfortunately, many times after the Trust is funded and the Trustee must begin to fulfill its purpose, little attention and education has been provided to the Trustee regarding the depth of their responsibilities, obligations and duties. Even in cases where there is an experienced Trustee, circumstances often arise creating difficult and many times conflicting issues for the Trustee or beneficiary. It is critical that fiduciaries have procedures in place to manage their many duties and responsibilities. It is equally important for a beneficiary to understand their rights.

The responsibilities of a Trustee can be placed into broad categories which include daily administration, investment management, tax considerations and preparation, exercise of discretion, maintenance of proper books and records, principal and income accounting and governance. Each of these responsibilities have many sub-parts and include fiduciary duties that must always be considered by an Executor or Trustee.

All Trustees and Executors have fiduciary duties which are created by statute (through the Trust or Estates Code) and by the Agreement creating the Trust or Estate. Included among the many fiduciary duties are a duty to maintain proper books and records, a duty of care and competence, a duty of impartiality, a duty to manage assets with care, skill and caution and most importantly a duty of loyalty which requires a Trustee or Executor to always place the interests of the beneficiary(ies) ahead of his or her own.

In addition to fiduciary duties, it is extremely important for a Trustee or Executor to fully understand the terms imposed by the instrument. This understanding includes what, if any, exculpation is provided the trustee; are any fiduciary duties modified; what are the duties imposed by the trust and what are the powers provided to accomplish those duties; what is the purpose of the trust and is that purpose attainable; what law governs the administration of the trust; who are the beneficiaries, where are they located, what is their relationship, do they get along, do they respect the implementation of a trust on “their” interest, do they recognize the rights of other beneficiaries; and, is there any history of litigation.

Connecting each of these responsibilities is governance. Trustees and Executors must establish policies and continuous monitoring of their proper implementation. They must create mechanisms to balance the exercise of powers and discretion (with the associated accountability) while complying with their fiduciary duties and they must manage the trust in a manner designed to achieve its purpose.

These obligations closely align with that of a board of directors. It is the framework of rules and practices by which a trustee provides accountability and fairness in its relationship with beneficiaries. The governance framework consists of procedures for reconciling the conflicting interests of beneficiaries in accordance with the Fiduciary’s duties and responsibilities as well as implementation of procedures for proper supervision and control of the trust while meeting the required levels of disclosure to beneficiaries. Governance also includes selection, engagement and oversight of professionals including legal, accounting and investment firms to properly manage tax matters, construct investment portfolios and manage legal issues and litigation.

Each fiduciary relationship is unique. Current and remainder beneficiaries have different interests and the administration, asset allocation and exercise of discretion will be different based upon the age and needs of the income beneficiary(ies) balanced against the obligation to remainder interests.