A Trustee’s Responsibilities Administering a California Living Trust
Estate planning clients often have a lot of questions about their obligations as a trustee of their living trust. Where the acting trustee is also the creator or “grantor” of the trust, the trustee typically has plenary power to act on behalf of the trust and may amend or even revoke the trust in its entirety.
However, when a grantor passes away or becomes unable to administer their trust, a successor trustee typically takes over these obligations. It is after this point, when a successor trustee begins to administer the living trust, that questions often arise with regard to the trustee’s responsibilities.
For the most part, a trustee administers a living trust by its written terms, which express the grantor’s intent. See Cal. Probate Code §§16000, 21101 and 21102. However, this can be much more complicated than it sounds. California courts are more readily permitting parties to present outside evidence of a grantor’s intentions, even where the language used in the trust is clear and unambiguous. The effect of this trend is that grantors must be even more careful to consider whether their living trust describes their intentions precisely, and then take the additional step of considering whether there is sufficient other evidence to prove what their intentions are with regard to the administration of their trust assets.
Trustee’s Standard of Care
A trustee’s legal standard of care is an evolving area of law. Overall, California courts interpret a trustee’s standard to be very high. However, a grantor may restrict or expand a trustee’s obligations through the language contained in the trust instrument itself. Section 16040 of the California Probate Code sets out the general standard of trustee care:
(a) The trustee shall administer the trust with reasonable care, skill, and caution under the circumstances then prevailing that a prudent person acting in a like capacity would use in the conduct of an enterprise of like character and with like aims to accomplish the purposes of the trust as determined from the trust instrument.
(b) The settlor may expand or restrict the standard provided in subdivision (a) by express provisions in the trust instrument. A
trustee is not liable to a beneficiary for the trustee’s good faith reliance on these express provisions.
(c) This section does not apply to investment and management functions governed by the Uniform Prudent Investor Act, article 2.5 (commencing with Section 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 delegate responsibilities that the trustee can reasonably be expected to perform. In practice, it is not uncommon for trustees to delegate some responsibilities. See Cal. Probate Code §§16001(a), 16012, 16052, and 16247. Some of the obligations that a trustee might delegate are investment, tax, legal and accounting services, which are types of services most trustees would not be expected to perform. However, a trustee must still act prudently in selecting which agents to use, and must continue to oversee those agents. They may not simply delegate tasks to others and forget about it.
Other Trustee Duties
In many situations, a trustee will have an obligation to provide an accounting and other information to the named beneficiaries of a living trust. See Cal. Probate Code §§16060-61.5, §16061.7, §16062, and §16064. As one may expect, a trustee also has a duty of confidentiality. However, a trustee might need to disclose some information in order to administer the living trust. Perhaps most importantly, a trustee must not put his or her interests above those of the trust or the beneficiaries, and should avoid conflicts of interest with the trust and the beneficiaries. This can be an especially complicated obligation to fulfill for many trustees since they are often not only a trustee, but also one of several beneficiaries named in the living trust. Unless the trust indicates otherwise, such a trustee should not favor a particular beneficiary or class of beneficiaries and avoid even the appearance of a conflict of interest.
A living trust will usually contain some language which gives the trustee discretionary powers–the power to use his or her own best judgment in certain situations. Be careful here. Even if a trust provides a trustee with sole, absolute or uncontrolled discretion, California courts typically still require trustees to act within the established standards of care and not in bad faith or with disregard to the express purposes of the living trust. See Cal. Probate Code §§16080-81.
With regard to investing trust assets, a trustee must make decisions which are in the best interest of the beneficiaries, subject to any limitations provided for in the trust. A trustee’s authority to manage investments should be set out in the trust instrument itself. Where the declaration of trust is silent or ambiguous, investment authority is also derived by statute, case law and the circumstances of each situation. See Cal. Probate Code §16200(a) and (b) and §16047. Generally, a trustee has the obligation to invest trust assets as a “prudent investor”, which is set out in the California Uniform Prudent Investor Act (the “Act”), unless the trust provides for a greater or lesser standard of care:
(a) Except as provided in subdivision (b), a trustee who invests and manages trust assets owes a duty to the beneficiaries of
the trust to comply with the prudent investor rule.
(b) The settlor may expand or restrict the prudent investor rule by express provisions in the trust instrument. A trustee is not
liable to a beneficiary for the trustee’s good faith reliance on these express provisions.
Cal. Probate Code §§16045 through 16054.
For trustees who are handling investment assets, it is critical to carefully review the language of the Act for guidance and seek advice from an experienced estate planning lawyer if they do not fully understand their obligations.
Remember that the law changes regularly. You should consult with an appropriate professional if you have questions about a specific situation. Presented here are some of the common responsibilities of trustees administering a living trust. A knowledgeable estate planning attorney can discuss your particular needs.
AUTHOR: Gehres Law Group, P.C.
Copyright Gehres Law Group, P.C.
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Disclaimer: While every effort has been made to ensure the accuracy of this publication, it is not intended to provide legal advice as individual situations will differ and should be discussed with an expert and/or lawyer. For specific technical or legal advice on the information provided and related topics, please contact the author.