A trust is a property arrangement in which a trustee manages the property for the benefit of the beneficiaries to the trust. The trustee is responsible for the trust and cannot use it for his or her own benefit. The trustee must manage the property according to the terms of the trust and distribute the assets to the beneficiaries as instructed by the trust.
Trustee Standard of Care
According to California Probate Code 16040, it is the responsibility of the trustee to use reasonable care, caution and skill under the circumstances when administering a trust. The trustee, however, is not responsible to the beneficiaries for errors that result from the trustee's good-faith reliance on a provision in the trust.
Trustee Fiduciary Duty
A trustee is a fiduciary. A fiduciary is a person that acts on behalf of another person. A fiduciary must act in good faith, in truthfulness and with honesty. A trustee, therefore, may not engage in self-dealing. In California, self-dealing means that the trustee cannot buy or sell the trust assets for his own benefit, cannot borrow money from the trust and cannot engage in a transaction that will result in personal benefit to the trustee. If the trustee is an attorney, the trustee is entitled to compensation; a court will determine a fair amount.
Trustee as an Investor
The trustee must use prudence when managing the trust. This means that the trustee manages the property as a prudent investor would by using reasonable care, caution and skill. When making investments, the trustee has a duty to earn a reasonable return on the investment; to balance the potential return against the risks; to diversify investments; to safeguard the trust property; and to keep trust property separate from other property not in the trust.
Trustee Duty to Account to Beneficiaries
According to California Probate Code 16060, a trustee has a duty to keep beneficiaries informed about the trust. The trustee must provide information about assets, liabilities, receipts and disbursements. The trustee is also responsible for reporting its actions that relate to the trust. The trustee must report to the beneficiaries at least on an annual basis, when the trust dissolves and when the trustee changes.
Breach of Trust
When a trustee breaches a duty, the trustee has breached the trust. The beneficiary can ratify the act, thereby waiving the breach, can trace and recover the property or can sue the trustee for the loss. A beneficiary cannot make a claim for breach of trust more than three years from the date the claim arose.