Being a trustee is a position of great responsibility – and a trustee also a legal obligation to continuously act in the best interests of the beneficiaries.
Fail in that obligation and you could quickly find yourself at the center of a lawsuit as the beneficiaries seek to have you removed from your position (or worse). That makes it important to fully understand exactly what your “fiduciary duty” entails.
You have to maintain your loyalty and their trust
Essentially, your fiduciary duty can be described in the following ways:
- The duty of loyalty: You’re expected to act on behalf of the beneficiaries, putting their interest ahead of theirs. That means never engaging in self-dealing or transactions that could benefit you at the beneficiaries expense. Conflicts of interest are a serious problem.
- The duty of care: You are required to manage the trust’s assets with the sort of care and diligence that any prudent person would exhibit in a similar situation. That means making informed decisions about investments or sales, keeping good records, avoiding risky investments and seeking professional guidance when necessary.
- The duty to remain impartial: No matter what your personal feelings about one or more of the beneficiaries, you have to remain impartial and discharge your duties according to the terms of the trust. “Playing favorites” with the beneficiaries is a serious form of misconduct.
- The duty of communication: It’s also part of the job to regularly keep the beneficiaries informed about any important investments, distributions and changes in the trust. That means keeping good records and being responsive to their questions.
Allegations of breaches of their fiduciary duty are among the most common causes of litigation between trustees and the beneficiaries of the trusts they manage. If you find yourself under scrutiny over your obligations as a trustee, it may be wise to seek legal assistance.