The executor of a living trust, normally referred to as the trustee, holds legal title to all trust assets but is expected to administer these assets for the benefit of the trust beneficiaries rather than himself. Some of his responsibilities are set by state law, and others are set by the terms of the trust deed.
Duty of Care
The trustee must manage trust assets with a reasonable degree of care. Although the term "reasonable" is somewhat ambiguous because it is based on the particular facts of each case, in general it means that the trustee must manage trust assets with as much care as a prudent person would exercise when managing his own assets. If he is authorized to invest trust assets, for example, he may violate this duty by engaging in reckless high-risk trading. The duty of care is a legal fiduciary duty-- it applies even if it is not mentioned in the deed of trust.
Duty of Loyalty
The duty of loyalty is another legal fiduciary duty that applies to the trustee independently of the terms of the deed of trust. The trustee must act in the best interests of the beneficiaries. He may not benefit from his administration of the trust, except for any trust administration fees authorized by the trust deed. A trustee violates the duty of loyalty if he reaps economic benefits from his administration of the trust, even if these benefits do not harm the beneficiaries.
The trustee must administer the trust in strict accordance with the terms of the deed of trust. A deed of trust may grant the trustee broad or narrow authority, and the trustee must act within these limits -- he must distribute assets to beneficiaries on time, for example, and he may not invest trust assets unless he is authorized to do so by the deed of trust. The terms of the deed of trust define the trustee's authority even if the grantor later changes his mind, until the trust is either amended or revoked.
Duty Not to Delegate Authority
Although the trustee may assign certain trust administration tasks to other parties such as accountants and lawyers, he remains ultimately responsible for their performance. If, for example, the trustee hires an incompetent tax lawyer to file trust tax returns, the beneficiaries may hold the trustee financially responsible for the lawyer's malpractice. Nevertheless, the trustee may still seek compensatory damages from the lawyer to reimburse himself for any damages he paid to beneficiaries.
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