Effective trust administration begins with a clear understanding of the trustee’s role. A trustee is charged with managing trust assets solely for the benefit of the beneficiaries and in strict accordance with the terms of the trust agreement. The very first step for any trustee—new or experienced—is to thoroughly read and understand the trust instrument. Only then can a trustee carry out the responsibilities and fiduciary duties that define the position. Not only must the trustee ensure the grantor’s intent is carried out, but must also be careful to avoid potential litigation for breach of fiduciary duty.

The core responsibilities of a trustee include:

Asset Management

Trustees must ensure that all trust property is properly titled in the name of the trust and kept separate from personal or other non-trust assets. Avoiding commingling is essential to preserving the integrity of the trust.

Prudent Investing 

Under the Uniform Prudent Investor Act (UPIA), trustees are required to assess investment goals, analysis of risk vs return, and asset diversification with objectivity, skill, and caution.

Appropriate Distributions 

Trustees must understand distribution standards, provisions in the trust, and periodically re-evaluate beneficiaries’ needs and resources to ensure requirements are met.

These core responsibilities are rooted in fiduciary obligations—legal duties that require the highest standard of care and include:

• Loyalty – to both the grantor and the beneficiaries
• Good faith – manage trust with honesty, integrity, and fairness
• Impartiality – avoid conflicts of interest
• Care – act as a reasonable person would
• Disclosure – keep beneficiaries appropriately informed – varies from state to state

Good trustees develop and follow thorough with consistent, well-documented processes. In many cases, a trustee may avoid liability for a mistake made in good faith if the decision resulted from a prudent and reasonable process—for example, a poor investment choice following appropriate due diligence.

Examples of sound processes may include establishing an investment policy consistent with trust purposes that includes selection and oversight of investment advisors, periodic review of financial accounting, communication with beneficiaries, and meticulous documentation.

With respect to distributions, a good trustee’s understanding of the distinction between mandatory and discretionary distributions is essential.

When the trust states that the trustee “shall” distribute, the trustee has a legal obligation to do so. Mandatory provisions may specify:

• The timing or triggering events for distributions,
• Whether distributions should come from income, principal, or both, or
• A hierarchy among beneficiaries or classes of beneficiaries.

The term “may” gives the trustee authority—not a duty—to make distributions. However, this discretion must still be exercised prudently and in alignment with the trust’s objectives.

Key considerations for discretionary distributions include:

• Trust Purpose: Is the goal to support beneficiaries currently, to preserve assets for the future, or both?
• Ascertainable Standard: Many trusts limit distributions to Health, Education, Maintenance, and Support (HEMS). This standard does not extend to luxury or happiness.
• Standard of Living: Trusts may direct the trustee to maintain the beneficiary’s lifestyle “as accustomed at the grantor’s death.”
• Other Resources: Some trusts require beneficiaries to use personal resources before seeking trust funds.
• Beneficiary Circumstances: Issues such as capacity, substance abuse, or addiction may affect distribution decisions.

As established, documentation is king when it comes to being a good trustee. For distributions, we recommend the trustee:

• Establish a process for making discretionary distributions,
• Memorialize when distributions are made and note the purpose if per an ascertainable standard, and
• Memorialize the rationale if an allowed distribution is withheld.

Takeaway

Serving as a “good” trustee requires diligence, objectivity, and adherence to established fiduciary principles. By understanding the trust instrument, implementing prudent processes, and maintaining clear documentation, trustees can fulfill their obligations effectively and confidently—ultimately ensuring the trust serves its intended purpose. Whether you are in the process of choosing one or have been asked to be a trustee, trustees are encouraged to seek qualified, professional help to ensure they are meeting their duties and not potentially exposing themselves to litigation.

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