The phrase “fiduciary” is from the Latin, and means “something inspiring trust,” or “credentials.” In law, a fiduciary duty is a special duty owed by one individual to another. This duty is imposed by state law. Under state law, an individual who is the trustee of a trust has a fiduciary duty to beneficiaries of a trust.
What are the Trustee’s Duties Toward Trust Beneficiaries?
A trustee is a person that holds legal title to trust property. A trust is a legal mechanism through which an individual, known as a settlor, gives property or assets to specific, named recipients, called beneficiaries. The trustee, by holding legal title, has the power to transfer the trust property to the beneficiaries, per the settlor’s instructions in the trust. The trustee is responsible for administering the trust before the property is transferred.
Trust administration consists of a number of activities. These activities include the trustee’s managing, investing, protecting, and safeguarding the assets the settlor placed in the trust.
The law regards these activities as important obligations. Therefore, a trustee is required by law to exercise particular fiduciary duties. Exercising these duties ensures that when the time comes for transfer of property or assets to beneficiaries, the property will be available for the beneficiaries’ use, as the settlor intended.
A trustee’s fiduciary duties include:
- The Duty of Loyalty: Trustees must ensure that beneficiaries’ interests in trust property are protected. To ensure this, trustees may not take any actions in favor of themselves, that would impair those interests. For example, a trustee may not take or borrow funds from the trust and use those funds for the trustee’s own personal benefit.
- The Duty of Care: Even when a trustee acts with utmost loyalty, the decisions the trustee makes to protect the beneficiaries must be taken with care and diligence. Settlors typically place money in trust to be invested. Under the duty of care, trustees are responsible for making decisions as to when, how, and what to invest. Trustees must make reasonable investment decisions. This means these decisions must be prudently undertaken, after the trustee researches the pros and cons of a particular investment.
- The Duty to Segregate Funds: The duty to segregate funds is similar to the duty of loyalty. The duty to segregate funds requires that the trustee not mix, or “commingle” their own personal funds with assets in the trust. If a trustee fails to keep their own funds clearly separate from the trust’s funds, issues may arise when the trust assets must be transferred to the beneficiaries.
- The Duty to Safeguard: A trustee is responsible for preserving the funds and assets in a trust. The duty to safeguard requires trustees to keep trust monies secure, to avoid theft. In the age of the Internet, this means that if trust monies are invested online, the trustee must take reasonable measures, such as installing antivirus and anti-malware software, to prevent a trust account from being hacked into.
- The Duty to Invest: A trustee has a duty to ensure the property in the trust earns money while the property is in the trustee’s care. Since this money becomes income to beneficiaries, to whom trustees have a fiduciary duty, investment decisions must be made with the objective of earning money. Trustees must exercise reasonable skill and care in determining what investments have a reasonable chance of earning money.
- The Duty of Accounting: This fiduciary duty requires that trustees make an accounting of, and keep records for, all financial transactions concerning the trust property. The trustee must keep records of expenses required to administer the trust (such as broker fees), as well as records of monies spent to improve the trust (such as when the trust is real property, and the trustee spends money on repairs to that property to attract tenants who will generate rental income for the beneficiaries).
Can I File Suit for a Trustee’s Breach of Fiduciary Duty?
Under most state laws, any violation of a trustee’s fiduciary duties renders the trustee liable. This means that a beneficiary can file a civil lawsuit against the trustee. In the lawsuit, the beneficiary must prove that a trustee breached a fiduciary duty. If a trustee can show this, the trustee is entitled to money damages. The amount of these damages equals the full amount of the loss to the trust from the improper action.
Each state has a statute of limitations that governs how long a beneficiary has to file a lawsuit against a trustee. Generally, the statute of limitations does not begin to “run” until the beneficiary has knowledge of the improper conduct. The beneficiary may gain such knowledge, for example, when the trustee files an accounting that reports the specific conduct that is wrongful.
Do I Need the Help of an Attorney With Breach of Fiduciary Duty Issues?
If you believe that a trust has been improperly administered by a trustee, you should contact an estate attorney. An knowledgeable estate attorney near you can review the trust documents, determine what rights you have under that document, and analyze whether a trustee engaged in a breach of fiduciary duty causing loss of money to the trust. The estate attorney can represent you at settlement proceedings, hearings, and in court.