General Responsibilities and Authority of Trustees
Prudent Man Rule:
Functions—preservation and productivity of trust res
A trustee acts in a fiduciary capacity (similar to an executor or administrator of an estate) with respect to specific property. The primary responsibilities of a trustee include preserving the trust res and making the trust property productive.
Preservation of the trust res involves identifying and segregating the property and safeguarding it while performing the trustee’s other functions during the course of the administration. Productivity is an on-going duty to make the trust property productive. Generally, a trustee has a broader investment responsibility than an executor or administrator because the trustee can invest and manage the trust funds to produce income for the current beneficiaries.
Since the trustee is acting in the beneficiaries’ best interests, the duties of preservation and productivity require the trustee to be impartial in his or her dealings, which requires the trustee to balance the terms, purposes and priorities of the particular trust in light of each beneficiary’s interest. In this balancing act, the trustee must struggle with the dual responsibility of preserving the trust corpus while producing adequate returns for the trust assets.
Trust terms and sources of trustee’s powers
As previously stated, the trust agreement is the main source of the trustee’s power and guideline for the trustee’s conduct. As such, the trustee must have a thorough understanding of its content in order to adhere to those dictates while administering the trust.
Another source of the trust terms and the trustee’s power is the law of the state where the trust is located. States often have statutes or judicial precedents that expressly confer certain requirements on the trustee.
Standards of fiduciary conduct
A trustee’s duties are owed exclusively to the beneficiaries of the trust. These duties are enforceable by the beneficiaries and violations of the trust’s terms may lead to the trustee being removed or surcharged for mismanagement of the trust’s assets. The basic standards of fiduciary conduct include:
- Duty to obey trust terms;
- Prudence—standards of care, skill and caution;
- Duty of loyalty; and
- Duty of impartiality.
In addition, if a transaction concerns the interests of the beneficiary, the trustee must disclose to the beneficiary all relevant facts, including the legal rights of the beneficiary.