With many people in Texas utilizing revocable living trusts as the backbone of their estate plans, the question often arises as to what are the duties of the trustee. As discussed in a recent article from Wealth Management, a trustee has four basic duties: 1) secure and protect the trust assets; 2) invest the trust assets; 3) make distributions to the beneficiaries; and 4) keep records, file tax returns, and make sure any other regulatory obligations are met with respect to the trust. In performing these duties, the trustee is treated as a fiduciary, which gives rise to a very high level of responsibility and can lead to personal liability if the trustee breaches his or her duties.
In investing the trust assets, the trustee must comply with the Uniform Prudent Investor Act, which essentially requires the trustee to invest the assets using the standard of a “prudent investor”, which is discussed more in depth in the law itself. However, the prudent investor rule can be modified by the trust to set a more liberal standard for trustees to follow. Before someone serves as trustee of a trust, he or she should have a Texas estate planning attorney review the document so that the potential trustee is aware of what is required in order to avoid breach of fiduciary duty claims.
Another area of importance for trustees is the manner in which distributions are to be made to beneficiaries. Often, trusts are drafted to require the trustee to make distributions to the beneficiaries for their health, support, education, and maintenance (referred to as the “HEMS” standard). As you can imagine, trustees and beneficiaries often disagree as to what is a reasonable level of support and maintenance. It is important that potential trustees read the trust document carefully in order to understand the distribution requirements, and to communicate with beneficiaries early on in order to set expectations and set the groundwork for resolving any future disagreements.
Being a trustee of a Texas trust can be a rewarding experience, but it also comes with a high degree of responsibility which can lead to personal liability for the trustee if not handled properly. Before agreeing to serve as a trustee, you should speak with an estate planning attorney to make sure you understand everything involved as serving as a trustee. Read more about Texas revocable living trusts here.
Reference: Joseph C. Mahon and Patricia Angus, Planning Trust Administration to Avoid Conflicts, Wealth Management, Nov. 21, 2014.