Types of Trustees and Fiduciary Duties
While the word “trustee” may bring to mind images of elderly gentlemen in suits it isn’t that mysterious. A trustee is a person known as a fiduciary who is placed in charge of managing a trust. A trustee can be an individual, an institution, or a combination of both.
Types of Trustees
Initial Trustee. Most grantors, giftors, settlors, or trust makers of revocable living trusts (the individual(s) who create these trusts) will serve as trustees themselves at least initially after the creation of the trust.
Successor Trustee. This is the person who is backup to the initial trustee. This person steps in when the initial trustee (or the successor that precedes him/her in the line of succession) becomes mentally incompetent, is unable or unwilling to serve, or dies.
What Is a Fiduciary?
A fiduciary is a person with a special relationship requiring heightened trust, confidentiality and performance of duties with responsibility. A trustee must set aside his/her personal feelings and goals and act in a way that’s in the best interests of his clients. A trustee must also act in the best interests of the trust’s beneficiaries and successor beneficiaries (remaindermen). A trustee is a fiduciary.
A trust agreement will give the trustee some guidance as to what his priorities should be for each beneficiary of the trust entity. For example a trust for the benefit of a surviving spouse and the minor children might provide that the spouse’s needs have priority over those of the children or that the children’s education must be top priority. A trust to provide for the education of grandchildren may set out exactly what types of schools the grandchildren can attend and exactly what educational expenses the trust will pay for in order for the trust to act. If the guidelines are not followed the trust will not act to pay or otherwise participate in the education of those grandchildren.
The trustee must use his or her good judgment as well as full due diligence when he delegates duties. He must avoid any conflicts of interest such as self-dealing (selling himself a trust property) and hiring a sibling as the trust’s investment advisor without the beneficiaries’ fully informed consent.
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