Being named as a trustee in someone's estate plan is a great honor, because it means that you are trustworthy. However, the job of a trustee is exacting, and even an innocent mistake can make you personally liable to the trust beneficiaries.
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 property for the benefit of the beneficiaries. The agreement is normally set out in a written document called the "trust agreement." Your first and foremost duty as a trustee is to read, understand and faithfully follow the 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 trustee is a fiduciary, 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. Your fiduciary duties come first any time you act in your capacity as trustee.
A trustee is duty-bound to deal with the trust property as a "prudent person" would deal with the property of another. Note that this is a standard of conduct rather than of performance. Your actions (or times of inaction) will be judged against what a reasonable person would have done in the same circumstances, given the same limitations to which you were subject and armed with the same information that was at your disposal.
A trustee must always act to benefit the trust and the beneficiaries. You should not do anything that gives you an opportunity to benefit yourself at all, much less to do so at the expense of the trust. If a conflict ever arises between your personal interests and those of the trust, you should put the interests of the trust first. For example, you should not sell trust property to yourself or sell your property to the trust, because this creates the appearance that you may have taken advantage of the trust. Similarly, you should never borrow money from the trust.
The duties of a trustee go far beyond those listed here. Hopefully, however, this has given you good reason to think twice before becoming a trustee.
Scott A. Makuakane and Roya J. Deyhim are estate planning attorneys with the law firm of Est8Planning Counsel LLLC. Contact Est8Planning Counsel LLLC at 891-8881 or www.est8planning.com.