What the Heck is Fiduciary Duty and Why Does a Trustee Have to Worry About it?


Although most people are honored to be the trustee for a friend or family member, it is often a lot of work and sometimes very stressful.  The trustee under the laws of California has a fiduciary duty to the beneficiaries of the trust.   In simple English this means the trustee must put the BENEFICIARIES INTERESTS ABOVE THE TRUSTEE.  What is also often the case is the trustee is also one of the beneficiaries and many times the majority beneficiary.  So how does this work and why is it sometimes a problem?   Well, the trustee cannot in any way appear to be engaged in any self-dealings or taking any advantage of the trust.  Common mistakes are taking out loans from the trust, or using trust funds to buy property, cars, or gifts for the trustee and/or family members.  Trustees that are also beneficiaries sometimes forget that even though they are also a beneficiary, they cannot dip their hands in the cookie jar without notifying the other beneficiaries, getting consent from the other beneficiaries or the court.

It does seem ridiculous that the trustee who is also a beneficiary could not take an advance on the trust distribution, but it is the law.  The other beneficiaries usually view any of these early distributions without consent or court approval as the trustee stealing or trying to give themselves the cream of the estate.  More often than not, there is a fair amount of family emotional baggage, i.e. sibling rivalry, that any action is always viewed with suspicion and rooted in childhood conflicts. Lawsuits are filed over trivial matters like missing velvet Elvis paintings, and large matters such as multi-million dollar homes.  All of these Lawsuits can easily be avoided by performing the duties of the trustee properly.  This includes; keeping good records, promptly paying off estate debts, avoiding any appearance of self-dealing or preferential treatment to the trustees self or immediate family, and usually retaining an attorney to help administer the estate.

When a trustee is sued, usually the trust allows him or her to defend themselves using trust assets.   If the trustee is found to have acted improperly, the court will many times charge them for not only the wrongdoing, but also all or a portion of the attorney fees.   Trustees get sued all of the time for very little, and family members act out family squabbles in the court system burning the estates money.  Trustees are awarded a fee which is approximately 1 percent of the value of the trust, but that is usually not enough to justify the risks associated with being sued.  If you are asked to be a trustee, be careful that you carry out your fiduciary duty properly, avoid any transactions that do not look kosher and actually give thought before accepting to the fact your sibling/cousin/in-law or some relative that has always had it in for you, may sue you.