Duty to Take and Keep Control of tangible trust assets
The trustee must collect all assets of the trust, take possession of
real and personal property and evidence of intangible property
such as stock certificates or notes.
Duty of Loyalty
The trustee must administer the trust solely in interest of
beneficiaries and not place himself in a position of conflict with
those interests. He must never commingle trust property with his
own. Also he must not sell trust property to himself or herself
without all beneficiaries’ consent. He must not sell trust property
and later take a reconveyance of the same. The trustee must not
use trust property for his own purposes. In addition he must not
take compensation from an outside party for performing any act as
trustee. All profits from self-interest transaction belong to
Duty to Deal Impartially with all beneficiaries
While the trustee has a duty to pay income beneficiaries, the
trustee must not do so to the detriment of successive beneficiaries
and remaindermen. The trustee should also refuse conflicting
directions from different beneficiaries and may be required to
seek court direction before proceeding.
Duty to Account
Under Illinois law, the trustee must account to the income
beneficiaries at least annually. The accounting must show the
receipts, disbursements and inventory of the trust estate. On
termination of the trust, all beneficiaries are entitled to a final
account showing the inventory of the trust estate, the receipts,
disbursements and distributions.
Duty to Exercise Reasonable Care
A trustee may be liable for exposing the trust to liability or making
trust property unproductive. She may also be liable for investment
losses or unnecessary taxes, subject to the overall purpose of the
trust. Regarding trust investments, the trustee is held to a prudent
investor standard. This standard is tougher than the prudent person
rule and creates an even higher standard of care than the care and
expertise used in handling ones own investments if the trustee
claimed expertise in obtaining the appointment. It requires that
the trustee use reasonable care, skill, and caution and reasonable
business judgment. The trustee must make sure that the portfolio
incorporates risk and return objectives that are reasonably suited
to the particular trust and that the portfolio is properly diversified.
The investment strategy must balance the interests of the income
beneficiaries and remaindermen.
Duty not to delegate
The trustee many not delegate the performance of acts involving
exercise of judgment and discretion and may delegate certain
investment functions if a prudent investor would delegate these
functions, but the trustee must exercise reasonable care and
caution when choosing an investment broker or advisor. The
trustee may have a duty to fire the delegee if he is not performing
as required by the trust or under the law.
Duty to Preserve Trust Property
The trustee must exercise reasonable care and diligence in
preserving and protecting trust property for the benefit of
beneficiaries. This includes the requirements that the trustee
appropriately insure real and personal property, pay real property
taxes, expend trust money to keep property in reasonable repair,
avoid waste and unnecessary depreciation and notify beneficiaries
when trust assets are insufficient to do what is required to
preserve trust property.
Duty to Defend and Maintain Actions
The trustee should defend the trust against lawsuits and may be
under a duty to appeal certain losses. However, the trustee should
not incur expense in contesting legitimate claims against the trust
or trust property. The trustee may settle a claim, even if the claim
may be unenforceable, if the claim is or will be prosecuted and the
cost of defending against it will be greater than the cost of the
settlement. The trustee also has a duty to maintain legitimate
actions the trust may have against third parties.
This list of duties of the trustee is not exhaustive and can be
revised by the documents that create the trust. If you are ever
asked to be a trustee, you should consult an attorney to help
you understand all of the powers, duties and other
requirements of being a trustee.