Trust law creates a fiduciary responsibility under which the trustee is accountable to the trust beneficiaries, not to the trust creator. Image: fizkes/Shutterstock.com
By: FEDweek StaffEvery trust has a trustee, who holds property for one or more beneficiaries. Indeed, the most important person in the trust framework is the trustee, the one responsible for managing trust assets. The trustee is the one who handles all the necessary paperwork and sees that tax returns are filed.
Therefore, if you agree to serve as a trustee you should do so only after careful consideration. Trust law creates a fiduciary responsibility under which the trustee is accountable to the trust beneficiaries, not to the trust creator, and breach of fiduciary action may generate an action by the beneficiaries.
Thus, every trustee has to act as a responsible fiduciary, serving the beneficiaries’ best interests, rather than dance to the trust creator’s tune.
It’s a role that necessitates clear communication and a commitment to ethical conduct. By upholding these principles, trustees not only fulfill their duties but also contribute to the broader goal of ensuring the trust’s success and longevity.
Prudent Investment Practices
As a fiduciary you must invest trust assets “prudently”. Under “prudent investor” guidelines, fiduciaries must look at the entire portfolio, taking appropriate risks in search of suitable rewards. A formal investment policy, developed by a professional, can help you meet your responsibilities.
Also, a solid investment policy may be a helpful defense against possible claims, as long as that policy is created and monitored in good faith.
Being a fiduciary means trustees must avoid conflicts of interest and self-dealing. They should refrain from using their position for personal gain or making decisions that could harm the beneficiaries’ interests. Any deviation from this duty can result in legal repercussions and undermine the trust relationship.
Navigating Legal Obligations
Trustees must grapple with a myriad of legal obligations, ranging from regulatory compliance to tax responsibilities.
Filing tax returns on behalf of the trust is a critical aspect of a trustee’s duties. Beyond taxes, trustees must comply with various legal requirements specific to the trust’s jurisdiction.
Relationships are Key
Trustees should take the time to understand each beneficiary’s unique needs, preferences, and circumstances to that the trust’s actions align with beneficiaries’ goals and expectations.
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