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Trust Law/Level II · Do you need one?/2.3 Choosing the people/Lesson 6

Trustee duties in plain words

A practical checklist for family members who have just become trustees

Education, not legal advice. Trust law changes from country to country and state to state, and the right structure depends on your situation. Anything you sign should be drafted or reviewed by a qualified lawyer where you live.

The lean path

The cheapest, lowest-tax, simplest and most private route the law allows, best first. Each step names the rule it rests on and the condition that keeps it lawful.

  1. Read the whole document first; if a term is unclear, interested persons can settle its meaning by nonjudicial settlement agreement (UTC §111) instead of court. Catch: the agreement must not violate a material purpose of the trust.
  2. Get the trust’s EIN directly from the IRS, which charges nothing, once a revocable trust becomes irrevocable; open an account in the trust’s name and keep it separate (UTC §810). Catch: file Form 1041 if gross income reaches $600.
  3. Notify qualified beneficiaries within 60 days of accepting and send at least annual reports (UTC §813); a plain ledger meets this. Catch: under model UTC §1005, an adequately disclosing report shortens beneficiaries’ time to sue to one year.
  4. Invest under the Uniform Prudent Investor Act (1994): diversify across the whole portfolio unless special circumstances make it unwise, and keep costs in proportion to the trust. Catch: careless investing can leave the trustee personally liable for losses.
  5. Take only reasonable pay (UTC §708) and avoid deals with yourself or close relatives; under §802 they are voidable unless the terms, a court or informed beneficiary consent authorise them. Catch: get that consent in writing after full disclosure.

MaterialsA copy of the trust document (the ‘instrument’) that names you as trusteeThe Uniform Trust Code, sections 801 to 813 (free on the Uniform Law Commission website), or your own state’s versionStatements for every account and asset the trust owns

Wonder

  1. What happens if I pay myself from the trust when the document does not allow it?
  2. Do I need to tell my beneficiaries everything I do, or just keep them informed?
  3. Who decides what ‘prudent’ investing actually means for my specific family situation?

Explore

  1. **Read the document first.** These are the duties introduced in lesson 1.1.6 (loyalty, prudence, impartiality), turned into a checklist. Under Uniform Trust Code (UTC) §801, a trustee must administer the trust in good faith, according to its terms and purposes and the interests of the beneficiaries. The document is your rulebook. If a provision is unclear, do not guess: a lawyer can advise, and a court can be asked for instructions (UTC §201). *Action:* Read the whole trust document and note every instruction before touching any assets.
  2. **Secure assets and get an ID if needed.** As trustee you hold legal title, and you must take reasonable steps to take control of and protect trust property (UTC §809). In the US, a revocable trust run by its living settlor usually uses the settlor’s own taxpayer number, but the IRS says a revocable trust that becomes irrevocable, as usually happens at the settlor’s death, needs its own Employer Identification Number (EIN). *Action:* Check with the IRS guidance or a tax adviser whether this trust needs an EIN.
  3. **Keep money separate.** UTC §810 requires a trustee to keep trust property separate from their own and to keep adequate records. Mixing the two, called commingling, makes it hard to prove which money belongs to the beneficiaries and can leave you personally liable for losses. Where feasible, accounts and other property should be held in a way that shows the trust’s interest. *Action:* If the trust holds money, keep it in an account held in the trust’s name, never in your personal account.
  4. **Keep records and inform.** UTC §813, which many states have adopted with changes, requires a trustee to keep qualified beneficiaries reasonably informed about the trust’s administration. Within 60 days of accepting the role, the trustee must tell them of the acceptance and give contact details. Current beneficiaries are entitled to a report at least annually, showing trust property, receipts, payments and the trustee’s pay, unless the trust terms or state law say otherwise. *Action:* Keep a ledger of every transaction and check what your state’s version of §813 requires.
  5. **Invest prudently.** In the US, most states have adopted the Uniform Prudent Investor Act (1994). It judges investment decisions in the context of the whole portfolio, not one asset at a time, and requires diversification unless special circumstances make it unwise. The trustee must weigh risk and return in light of the trust’s purposes, the beneficiaries’ needs and the time it must last. A trustee who invests carelessly can be personally liable for resulting losses. *Action:* Write down the trust’s purposes and needs, and get advice before making major investment changes.
  6. **Fairness and self-dealing.** UTC §803 requires a trustee of a trust with two or more beneficiaries to act impartially, giving due regard to their different interests, such as current and future beneficiaries. Under UTC §708, a trustee is entitled to reasonable pay unless the trust terms say otherwise, but deals between the trust and yourself or close relatives (spouse, children, siblings, parents) are presumed to be conflicts and can be undone by a beneficiary under §802. *Action:* Before paying yourself or any relative from the trust, check the document and get advice.

Key facts

  • The trustee holds legal title to the property but has a fiduciary duty to manage it for the beneficiaries’ benefit.
  • Under Uniform Trust Code §813, a trustee must keep qualified beneficiaries reasonably informed, notify them within 60 days of accepting, and report at least annually unless the terms or state law provide otherwise.
  • Uniform Trust Code §810 requires a trustee to keep trust property separate from their own and to keep adequate records; mixing them (commingling) can lead to personal liability.
  • The IRS says a revocable trust that becomes irrevocable, as usually happens at the settlor’s death, needs its own EIN.
  • A trustee may be held personally liable for losses caused by imprudent investment or management; the Uniform Prudent Investor Act (1994) judges decisions across the whole portfolio.
  • Under Uniform Trust Code §§802 and 803, a trustee must act impartially among beneficiaries, and transactions with the trustee or close relatives are presumed to be conflicts.

Exercise nine, six, three, one

9CollectList up to 9 tasks a new family trustee may face in the first months, such as reading the document, finding the assets, getting a tax ID, opening a trust account, notifying beneficiaries, keeping a ledger, reviewing investments, handling a request for money and paying a bill.
6ClusterSort the tasks into 6 categories: understanding the document, securing assets, tax and identification, separate accounts and records, informing beneficiaries, and investing and fairness.
3DistillReduce the 6 categories to 3 that a new trustee should deal with first, and note why each cannot wait.
1CrystallizeWrite 1 sentence naming the first step a new trustee should take and the duty it serves.

Fact check

Dates, figures and claims checked against the published sources listed below.

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