If trust were a living creature, it would be on the endangered species list.
- Unknown
Generally speaking, a trust cannot exist without three things: trust property, beneficiaries and a trustee. What happens if the trustee dies? What if the grantor forgot to choose a trustee? Fortunately, forgetting to appoint a trustee will not make a trust invalid. Many times, a court will intervene (if the beneficiaries ask nicely) and will appoint someone as trustee. As the saying goes, “A trust will not fail for want of a trustee.”
Wow. That ranks right up there with Biff Tannen’s, “Make like a tree and get out of here.”
You can assume that a court is not going to get involved with a contract matter like a trust if it does not have to. That means that the role of trustee must be pretty important. Practically, this makes sense. If the grantor wanted to delay or prevent the beneficiaries from taking full ownership in the property he placed in the trust, he would not want the trust to end just because the trustee didn’t exist. The question then becomes, “What does the trustee do that is so important?”
A trustee is a sort of custodian of the property that is placed into the trust. He or she holds legal title to the property while the beneficiaries hold future beneficial interests. As a result, the trustee is held to a fairly high standard of behavior. Essentially, he must manage the trust property in a way that benefits only the beneficiaries. He must also work for the benefit of all of the beneficiaries, rather than just one or a select few. He should deal with the trust property in the same way that he would deal with his own property. These duties are called the duty of loyalty, the duty of prudence, and the duty of impartiality.
There are many other duties imposed on a trustee that are related to the three main duties. A trustee must collect and protect trust property. He or she must earmark trust property as belonging to the trust and may not mingle his own personal funds with those of the trust. He must inform and account to the beneficiaries regarding activities involving trust property. In many states, the trustee must provide the beneficiaries with a copy of the trust document if it is requested.
A trustee has many duties, but also has a great deal of authority regarding the trust property. The trust document typically states what powers the trustee may exercise, but many powers held by the trustee are given by statutes. Iowa’s statute grants 32 separate and distinct powers to a trustee outside of the trust document. Fortunately, the grantor can limit the ways in which the trustee exercises those powers by imposing conditions. Plus, with the fiduciary duties outlined above, a trustee is somewhat limited in the way he or she exercises his authority regarding trust property.
Clearly a trustee plays a significant role in the operation and effectiveness of a trust. Selection of an appropriate trustee can make or break a trust’s effectiveness. Family relationships are often a very important consideration in choosing your trustee as well. If the trustee doesn’t like your kids, he won’t want to exercise his discretion in their favor when deciding whether to distribute income to them. On the other hand, a trustee with little to no experience managing money could cause the value of trust property to decrease substantially. With the help of an attorney or financial advisor, you can navigate these complex issues and choose the appropriate person to manage your trust for your beneficiaries.
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Lawyer Joke of the Day:
Five signs you need a new lawyer:
4. He picks the jury by playing “Duck-Duck-Goose.”
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