Perhaps a friend or loved one had enough confidence in you to name you as a trustee in his or her living trust. You may know that a trust is a way to manage one’s assets, but what does the trustee do? What are your responsibilities and how do you know when you need step into your role? Here are five basic facts you should know about being a trustee of a living trust in California:
- Knowing when to act. People who create a living trust often name themselves as the original trustee. They name someone else to take over when they are no longer able to act, known as a “successor” trustee. You need to know which one you are. The original trustee begins his or her duties right away. A successor needs to know what conditions the trust names that may require them to take over, usually when the original trustee dies or becomes incompetent.
- What are your duties? The trustee has a duty to act in the best interest of the beneficiaries. You should not take this responsibility lightly, but you should not be afraid, either. Let common sense be your guide and consult professionals when needed. The trust will usually cover the cost of legal and tax advice. The trust document will lay out the terms of the trust you must follow. Do not use the trust to your own advantage, and manage the property in a careful manner. You may find yourself paying bills, investing money, or maintaining real estate.
- What if you are also a beneficiary of the trust? This is actually a common scenario, especially for family trusts set up by parents who name a child as the trustee. You still must act on behalf of all beneficiaries, and not just for yourself. Be careful to keep trust property separate from other property and avoid any conflict of interest to avoid litigation.
- Co-trustees. Sometimes a trust names more than one person to act as trustee. This can create conflict. Co-trustees must agree on all actions on behalf of the trust, unless the trust instrument specifically says they may act independently. Under California law, you are responsible for each other’s actions as trustees, so you must be careful.
- Accounting. One of your responsibilities as trustee is to inform the beneficiaries about the trust. This includes providing them with an accounting of the trust assets at least once a year, although sometimes beneficiaries can request more frequent and detailed reports. Some trusts have an exception to this requirement. Either way, you should keep accurate accounts.
Do you have to accept this role?
The short answer to this question is no. You may decline to serve. The trust may name a second successor trustee, or may give you the power to nominate another successor trustee. Perhaps you feel this trust is large enough and complicated enough to need a professional trustee, such as a bank, to administer it. Or perhaps the trust has caused a conflict in the family you want to avoid, and a third-party trustee will settle the conflict.
Being named as someone’s trustee is an honor, but also a big responsibility. The first step to becoming a successful trustee is understanding what your role will be.