Your aging aunt has asked you to be trustee of the trust she set up for her spendthrift daughter. “Why not?” you think. Think again. As a laymen, Trusteeship over another’s trust is a burdensome job, fraught with potential personal (read: you pay) liability.
In addition to the trust provisions which lay out your duties and obligations, California imposes very strict guidelines and protections which, in aggregate, are referred to as fiduciary duties. They include:
Duty to administer trust
Duty of loyalty
Duty to deal impartially with beneficiaries
Duty to avoid conflict of interest
Duty not to undertake adverse trust
Duty to take control of and preserve trust property
Duty to make trust property productive
Duty to keep trust property separate and identified
Duty to enforce claims
Duty to defend actions
Duty not to delegate
Duty with respect to cotrustees
Duty to use special skills
Each duty above imposes very strict and nuanced responsibilities on California trustees. These are onerous, and often easily and inadvertently breached by a layman. Moreover, if the trustee is also a beneficiary of the trust, they will subject to much harsher scrutiny.
If a trustee is sued for breach of his or her fiduciary duties, he or she may be forced to disgorge any trustee fees taken, may have to pay out of pocket for any damage incurred to the beneficiaries as a result of the trustee’s actions, and may in fact be liable for punitive damages. Furthermore, once one has accepted the position of trustee, they may necessarily become a liaison between hostile beneficiaries (usually family members) which can have an emotional toll on the trustee – particularly if the trustee is related to the beneficiaries. Sides may be taken, and familial relations may be damaged. Moreover, San Diego courts have begun cracking down on trustee fees; by some accounts, $25/hour is now considered the standard for a lay-trustee.
The best thing a trustee can do to protect themselves is to not accept the position in the first place. Absent that, a trustee is usually authorized to enlist professionals – financial advisers, accountants and lawyers – to assist with prudent and lawful management of the trust. These professionals are paid from the trust assets, rather than by the trustee him/herself. A good team of professionals will not only lighten the burden of trusteeship, they will ensure that a trustee complies with his or her fiduciary duties.