As a fiduciary, you are held to the highest standard of care in dealing with the Trust assets. This means you have a legal duty of undivided loyalty to the primary beneficiary of the Trust. You must be cautious and prudent in dealing with Trust assets. As a fiduciary, you must remember, Trust assets do not belong to you and must never be used for your benefit or mixed with your assets or anyone else’s assets. You may be held personally liable and responsible for any damage or loss to Trust beneficiaries resulting from a violation of your trustee duties as a fiduciary (Trustee). More to the point, you have the following trustee duties and more:
- You must administer the trust according to its terms.
- You are required to act with undivided loyalty to the beneficiaries of the Trust. As trustee can breach the duty of loyalty by acting for personal gain;
- You are obligated to eliminate and exclude all selfish interest and to act solely for the highest and best benefit of the beneficiaries of the Trust;
- You are not permitted to obtain any economic advantage and may not profit from your relationship from the Trust;
- You cannot engage in “self-dealing” regarding the Trust assets. “Self-dealing” means that a trustee (such as you) used the advantage of his or her (your) position to gain an economic benefit for the trustee, other than reasonable compensation. The Trust, as drafted, permits you to “receive reimbursement, for all reasonable expenses incurred in the management and protection of the Trust Estate.”
“Self-dealing” occurs when a fiduciary (you) has a personal interest in a transaction of such a substantial nature that it might have affect his or her (your) judgment in a material regard. “Self-dealing” can occur when a trustee, acting for himself and also as trustee, seeks to consummate a deal in which self-interest is opposed to duty. A trustee who engages in “self-dealing” violates his or her duty of loyalty.
- You owe a special duty to Trust beneficiaries in your transactions relating to them, which is called a fiduciary duty. This fiduciary duty, among other things, requires you to conduct your transactions for the benefit of all beneficiaries and the trust with scrupulous integrity, honesty, good faith, loyalty, care and diligence;
- You cannot place yourself in a position in which your self-interest would or possibly could conflict with your trustee duties to act for the benefit of Trust beneficiaries;
- You cannot use trust assets for personal benefit except as approved by a court of competent jurisdiction;
- You are obligated in dealing with trust assets to act as a prudent person dealing with the property of another would act, including exercising the care and skill that a person of ordinary prudence would exercise in dealing with the property of another;
- You are obligated to be vigilant in protecting Trust assets.
The following is an outline of some of your trustee duties. It does not describe all of your trustee duties under the Trust and is not a substitute for seeking professional legal advice. If you have any questions, you should retain your own separate attorney.
- Immediately locate, identify, and inventory all of the assets of the Trust and make proper arrangements for their protection, such as changing the locks on the house, renting a safe deposit box for important documents, etc.
- Immediately take title to all the Trust’s property. The property should be titled in the name of the Trust. Do not put trust funds or assets into joint accounts, trust accounts (“in trust for”) or payable on death (POD) accounts. Do not list yourself as beneficiary on any bank accounts or other assets belonging to the Trust.
- Keep detailed records of all receipts and expenditures you make on behalf of the Trust, including bills, receipts, bank statements, tax returns, bills of sale, promissory notes, etc. Include date, check numbers, payees and purpose for all expenditures. Avoid dealing in cash!
- Establish a budget, pay Trust debts when they become due, and properly invest Trust assets. You may hire accountants, attorneys, and other advisors to help you carry out your trustee duties. You are also responsible for collecting information regarding taxes, and for preparing or filing any required tax returns. Please create an inventory of assets (both personal property and financial accounts). This will serve as the opening balance for the accounting that you are required to maintain.
- Keep detailed records of the time you are spending in identifying, managing and protecting Trust assets in case you later decide to ask to be paid for your time in managing Trust affairs. If you do not maintain these records now, it will be impossible to re-create them at a later date in the event you decide to seek this compensation.
- Generally, you must account to the beneficiary on an annual basis. This includes information recording all sums and property received since your appointment itemized by date, source, purpose and account; and all expenditures made since your appointment, itemized by date, payee, purpose and amount; and the balance on hand at the end of the accounting period. The trust document may provide more detailed information about this duty. Sometimes this duty to provide an accounting is waived. However, in our opinion it is usually best to provide the accounting anyway.
I advise making and maintaining copies of all the statements each year, as well as a written statement that you have delivered such statements to the beneficiaries (or counsel for the beneficiaries) each year. It is a better practice to account more frequently, however.
- NEVER use any Trust money or property for any reason other than Trust expenses. You may not profit in any way from access to the Trust assets. You have a legal duty of undivided loyalty to the beneficiaries. Neither you, your friends, nor other family members may profit by dealing in or with Trust assets. For example, you may not invest assets in family businesses or the like. You must be cautious and prudent in investing the Trust’s assets. A copy of the Prudent Investor Act is enclosed for your review. This is a general guideline under Arizona law for a fiduciary’s management of assets belonging to another. The Act may be altered by specific provision of the Trust; more specifically, the Trust may allow investments and transactions not allowed under the Act. Please seek the advice of the relevant professional (namely, financial advisor or CPA) in regard to management of the specific assets belonging to the Trust, whether held in the Trust or otherwise. Please note as well that the Trust is governed by Arizona law.
Advise all financial advisors in writing that the account is a fiduciary account and keep a copy of your written communication to them telling them of the fiduciary nature of the account.
- You must not make speculative investments. Do not purchase merchandise or services that would be objectively considered extravagant or inappropriate for a prudent investor as set out in the enclosed statute.
The applicable statutes are located at A.R.S. 14-10801 through -10813.
If you have questions regarding your trustee duties, contact us. The information set forth in this letter is intended to be of a general nature. However, we are happy to guide you regarding your particular situation. We just need to meet first and have you sign a fee agreement.