Trust Administration

Trust Administration is an all encompassing term relating to the duties and responsibilities of the trustee of a trust. The trustee is the captain of the ship and trust administration is the navigation that keeps the ship on a steady course. From the very simple trust to the largest and most complicated, proper trust administration is key and should only placed in the hands of persons who are both willing to undertake the role and capable of performing the role.

Trustee’s Duties

California law sets forth several duties that the trustee must follow including but not limited to the following:

  • Duty to Administer Trust
  • Duty to Account
  • Duty to Furnish Information
  • Duty of Notification
  • Duty of Confidentiality
  • Duty of Loyalty
  • Duty of Impartiality

Trustee’s Standard of Care

As the trustee performs their duties, California law requires that:

“The trustee administer the trust with reasonable care, skill and caution under the circumstances then prevailing that a prudent person acting in a like capacity would use in the conduct of an enterprise of like character and with like aims to accomplish the purposes of the trust as determined from the trust provisions.”

This standard may be altered by you in the trust instrument and does not apply to investment and management functions governed by the Uniform Prudent Investor Act.

Unless the trust instrument provides otherwise, a trustee who exercising investment and management powers must comply with the Uniform Prudent Investor Act (UPIA) which requires that the trustee act as a prudent investor would considering the purposes, terms, distribution requirement and other circumstances of the trust. Some of the circumstances a trustee shall consider are:

  • General economic conditions
  • Expected tax consequences
  • Expected return from income and capital appreciation
  • Needs for liquidity, regularity of income and preservation of capital

Trustee’s Powers

In order for the trustee to exercise their duties pursuant to the accepted standards of care and administer the trust to achieve the trust purposes, the trustee must have sufficient power to act. Every trust instrument should be carefully drafted to provide the trustee with enough power he or she needs to carry out the trust purposes and should not unduly limit their power to act. Generally, the trustee has the following powers without having to obtain court authorization:

  • All powers provided by the settlor in the trust instrument
  • All powers to carry out the purposes of the trust except as limited in the trust instrument
  • All powers provided by California statute except as limited in the trust instrument, some of which include:
    • Collect and hold property
    • Manage property
    • Buy or sell property
    • Develop land
    • Deposit funds and conduct banking transactions
    • Insuring of trust property
    • Borrow money and encumber or pledge trust property
    • Payment and settlement of claims
    • Continuation of business operations

Good trust administration is key to the success of any trust and should not be undertaken lightly. Any individual or entity named as a trustee must fully understand their duties, functions and obligations. When the settlor is also the trustee and the primary beneficiary trust administration is fairly straight forward and relatively simple. The problems occur when successor trustees come into office, and this is where good drafting by a qualified attorney can alleviate most issues that will arise.