Selecting a trustee to administer your trust is as important as ensuring your trust is well set up and legally valid. Trustees are selected to hold trust property and to manage it for the benefit of the trust beneficiaries.
The trustee has various legal duties to abide by, all of which are geared towards ensuring that every decision the trustee makes as a trustee is for the benefit of the trust beneficiaries.
One of the key duties a trustee owes is to act in the best interest of the beneficiary, and to disclose matters in which the trustee may be self-dealing. This means the trustee cannot take trust property and use it for his or her own benefit. The trustee also cannot make deals that would benefit the trustee at the disadvantage of the beneficiaries.
The trustee must also ensure that he or she makes prudent decisions as to how trust property is invested and managed. The trustee has to invest the property using reasonable care, skill, and caution, and taking into consideration the goals and limitations of the trust as spelled out in the trust creating document.
If a trust loses its value because of a downturn in the market, it does not mean the trustee did not invest prudently. Even the prudent investor rule accounts for downturns in the market and looks to see if at the time the investment was made, the trustee was reasonably cautious.
A person who both forms a trust and serves as its trustee also has to abide by the duties required of other trustees.
If a trustee does not fulfill his or her duties, or takes actions that are violations of his or her legal duties, the trustee can be sued by the trust beneficiaries. The beneficiaries can sue the trustee personally, which means that if the trustee is found to have breached his or her duties, the trustee would be required to financially compensate the beneficiaries from his or her own personal assets.
In order to protect themselves from this kind of personal liability, some trustees choose to obtain insurance coverage sometimes referred to as “errors and omissions insurance.”
When choosing a trustee, a person intending to create a trust should consider if the person chosen to act as a trustee can manage and fulfill all the duties required under the law. Picking the right trustee is important to the beneficiaries because their income from the trust can be greatly diminished by an ill-suited trustee.
Reach Out to Us Today for Help
If you want to use a trust as part of your estate plan, and want to learn more about the role of a trustee and how the trustee may be held accountable, contact an experienced DuPage County estate planning attorney for more information. Contact Momkus McCluskey LLC in DuPage County, Illinois for a consultation.