A Trustee’s Obligations Administering a California Living Trust
Estate planning clients frequently have a great deal of concerns about their obligations as a trustee of their living trust. Where the acting trustee is likewise the developer or “grantor” of the trust, the trustee generally has plenary power to act upon behalf of the trust and might modify or perhaps withdraw the trust in its entirety.
Nevertheless, when a grantor passes away or becomes unable to administer their trust, a follower trustee normally takes over these obligations. It wants this point, when a follower trustee begins to administer the living trust, that concerns frequently develop with regard to the trustee’s responsibilities.
For the a lot of part, a trustee administers a living trust by its composed terms, which express the grantor’s intent. See Cal. Probate Code 16000, 21101 and 21102. This can be much more complex than it sounds. California courts are quicker permitting parties to present outdoors proof of a grantor’s objectives, even where the language utilized in the trust is clear and unambiguous. The result of this trend is that grantors should be a lot more cautious to consider whether their living trust explains their intentions specifically, and then take the additional step of thinking about whether there is adequate other evidence to prove what their objectives are with regard to the administration of their trust assets.
Trustee’s Standard of Care
A trustee’s legal requirement of care is an evolving location of law. Overall, California courts interpret a trustee’s standard to be extremely high. A grantor might limit or broaden a trustee’s responsibilities through the language contained in the trust instrument itself. Section 16040 of the California Probate Code sets out the general requirement of trustee care:
(a) The trustee will administer the trust with sensible care, ability, and caution under the scenarios then dominating that a sensible individual acting in a like capacity would utilize in the conduct of an enterprise of like character and with like objectives to achieve the functions of the trust as determined from the trust instrument.
(b) The settlor may expand or limit the basic provided in subdivision (a) by express provisions in the trust instrument. A
(c) This section does not apply to investment and management functions governed by the Uniform Prudent Investor Act, post 2.5 (commencing with Area 16045).
Where a trustee has special skills, he/she is required to use those skills with respect to administering a trust. Cal. Probate Code 16014. In addition, a trustee may not entrust duties that the trustee can reasonably be anticipated to perform. In practice, it is not uncommon for trustees to hand over some obligations. See Cal. Probate Code 16001(a), 16012, 16052, and 16247. A few of the responsibilities that a trustee might entrust are investment, tax, legal and accounting services, which are types of services most trustees would not be anticipated to perform. However, a trustee needs to still act wisely in picking which agents to use, and must continue to manage those representatives. They may not simply delegate tasks to others and forget about it.
Other Trustee Duties
In numerous circumstances, a trustee will have a responsibility to offer an accounting and other details to the called beneficiaries of a living trust. See Cal. Probate Code 16060-61.5, 16061.7, 16062, and 16064. As one might expect, a trustee also has a duty of privacy. A trustee may require to disclose some details in order to administer the living trust. Possibly most importantly, a trustee needs to not put his or her interests above those of the trust or the recipients, and should avoid disputes of interest with the trust and the recipients. This can be an especially complicated commitment to fulfill for numerous trustees given that they are often not only a trustee, however also among several beneficiaries named in the living trust. Unless the trust shows otherwise, such a trustee needs to not prefer a specific beneficiary or class of beneficiaries and avoid even the look of a conflict of interest.
A living trust will typically consist of some language which offers the trustee discretionary powers– the power to use his or her own best judgment in certain situations. Beware here. Even if a trust offers a trustee with sole, outright or unchecked discretion, California courts usually still need trustees to act within the established requirements of care and not in bad faith or with neglect to the express functions of the living trust. See Cal. Probate Code 16080-81.
With regard to investing trust properties, a trustee should make choices which are in the very best interest of the beneficiaries, subject to any constraints provided for in the trust. A trustee’s authority to handle investments must be set out in the trust instrument itself. Where the declaration of trust is silent or ambiguous, investment authority is also obtained by statute, case law and the scenarios of each circumstance. See Cal. Probate Code 16200(a) and (b) and 16047. Generally, a trustee has the responsibility to invest trust properties as a “sensible investor”, which is set out in the California Uniform Prudent Investor Act (the “Act”), unless the trust offers a higher or lesser standard of care:
(a) Other than as supplied in subdivision (b), a trustee who invests and handles trust possessions owes a responsibility to the beneficiaries of
(b) The settlor may expand or restrict the prudent investor guideline by express provisions in the trust instrument. A trustee is not
Cal. Probate Code 16045 through 16054.
For trustees who are handling financial investment assets, it is crucial to thoroughly evaluate the language of the Act for guidance and consult from an experienced estate planning attorney if they do not totally comprehend their obligations.
Remember that the law changes regularly. You ought to seek advice from an appropriate expert if you have concerns about a particular scenario. Provided here are a few of the common obligations of trustees administering a living trust. An educated estate planning attorney can discuss your particular needs.