A trustee is what the law calls a fiduciary. A fiduciary is a person who is responsible for taking care of something that belongs to someone else. Under the law, fiduciaries owe legally enforceable duties to the beneficiaries — the people or charities on whose behalf they handle assets.
A trust is a legal relationship that results when a person (often called a trustmaker, a settlor or a grantor) makes an agreement with a trustee to handle assets for the benefit of one or more beneficiaries. The agreement is normally set out in a written document — the trust instrument or the trust agreement. The first and foremost duty of any trustee is to read, understand and faithfully follow the exact terms of the trust instrument.
Once the trust agreement is made, the trustmaker transfers property to the trustee. The trustee actually becomes the legal owner of the property. However, the “real” owners of the property are the beneficiaries, who are said to be the equitable or beneficial owners; they are the ones who are supposed to benefit from the property.
A trust can have more than one trustee at a time. Each co-trustee must decide for himself or herself how best to carry out his or her fiduciary duties. Beware that a co-trustee can be held responsible for another co-trustee’s breach of a fiduciary duty. Thus, it is important that all cotrustees pay close attention to everything that is done in the administration of the trust. Any question or problem should be communicated to the other co-trustee or co-trustees immediately. Generally, when there are two co-trustees, both must agree on all matters of trust administration. When there are three or more co-trustees, the majority rules.
In order to minimize the chances of being held responsible for someone else’s poor judgment or breach of duty, a cotrustee should be sure to make a written record of any points of disagreement about trust business. In extreme cases, a co-trustee may be required to blow the whistle on other co-trustees’ activities.
If you ever have questions about what to do as trustee, you should seek appropriate advice immediately. You should not hesitate to consult your lawyer, your CPA or other advisors.
The fact that you have been named as a successor trustee in someone’s trust instrument does not obligate you to accept that position. You must consider your decision to accept the job of trustee very carefully.
Once you accept the position, you accept all that goes with it. It is a position of great honor that involves great responsibility.