You often hear the phrase, “fiduciary duty,” but what does that mean when it comes to managing a trust?
First and foremost, trustees, are bound by a fiduciary duty to the beneficiaries of a trust. Under the law, there are three elements of fiduciary duties involving a trust: a duty of loyalty, a duty of care and the duty of full disclosure.
The duty of loyalty refers to the trustee’s obligation to manage the trust in a way that is in the best interest of the beneficiaries. A trustee cannot act in their own interests or in the interests of others. All actions that involve a conflict of interest will be considered illegal.
Conflicts of interest could involve a bias towards one of the beneficiaries or commingling personal assets with the assets in the trust. If the trustee has a biased relationship with one beneficiary, the trustee might not be able to make decisions that are in the best interest of all the beneficiaries. Additionally, the duty of loyalty prohibits “self-dealing,” which can occur when a trustee uses assets in the trust for personal reasons.
The duty of care requires the trustee to avoid actions that could be harmful to the beneficiaries. A trustee is required to act as any other “reasonably” prudent person would when managing a trust. Additionally, if a trustee is skilled in an area relating to the management of the trust, he or she will be held to that standard of care when it comes to making decisions in those areas.
There are a few parts of the duty of full disclosure. This duty requires the trustee to inform beneficiaries on decisions involving the trust. According to the American Bar Association (ABA), it also requires “full disclosure of material facts” and “render clear and accurate accounts of the administration of the trust.”
There can be severe penalties for trustees who fail to fulfill their fiduciary responsibilities. This is known as a “breach of fiduciary duties.” If you believe your trustee has breached his or her fiduciary duties or you have any other questions regarding your trust, consult with an experienced comprehensive estate planning and asset protection attorney in your area today.