A trust is a fiduciary relationship with respect to property in which one person, the trustee, holds the legal title to the trust property for the benefit of another person or persons, the beneficiary. Essentially, it is a device where one or more persons manage the property for the benefit of others. The person who creates the trust is called the settlor, also known as a trustor or a grantor.
quick overview of the many duties that a trustee must follow under the laws of North Carolina
Sources of Power
The sources of the trustee’s power according to the North Carolina Uniform Trust Code are as follows:
- Those expressly stated in the trust document;
- All powers over the trust property that an unmarried individual has over her own property, unless limited in the trust document;
- Any other powers appropriate to achieve the proper investment, management, administration, or distribution of the trust property unless limited in the trust; and
- Powers conferred upon her by the North Carolina Uniform Trust Code, unless limited in the trust.
Standard of Care and Duty of Loyalty
A trustee has a duty to administer the trust in good faith and in a prudent manner, in accordance with the terms and purposes of the trust document. The trustee must also exercise reasonable care, skill and caution. A trustee has a duty to administer the trust solely in the beneficiaries’ interests and should not have any self-dealings.
Duty to Separate Assets
The trust assets must be kept separate from the trustee’s personal assets and from the assets of other trusts. Title to the trust property must be in the name of the trustee, as trustee for the trust. For example – John Smith, Trustee for the John Smith Revocable Living Trust, dated June 5, 2014.
Duty to Defend the Trust
The trustee is under a duty to defend the trust and to protect its assets from claims of others. The trustee cannot take a position that is inconsistent with the best interest of the beneficiaries.
Duty to Report
The trustee is under a duty to keep adequate records of trust activities. Depending on what the trust document says, the trustee may be under a duty to supply information regarding the activities and the status of the trust to the qualified beneficiaries upon request and at reasonable times.
Duty to Preserve Trust Property and Make it Productive
There is a basic duty to preserve and protect the trust assets and an implied duty to make the trust property productive, which includes the duty to invest. The scope of the duty is to exercise reasonable care to collect all claims due to the trust, to lease land or manage it so that it is productive or sell it if it is not productive, and to protect trust property by recording documents to protect title. The scope of the duty is also to keep securities and funds in a safe place, to pay taxes on the trust assets out of trust funds, and to secure insurance on trust properties.
Duty to Follow the Prudent Investor Act
A trustee is required to also invest and manage trust assets as a prudent investor would, by considering the purposes, terms, distribution requirements, and other circumstances of the trust. In satisfying this standard, the trustee is to exercise reasonable care, skill, and caution. A trustee’s investment and management decisions respecting individual assets must be evaluated not in isolation but in the context of the trust portfolio as a whole and as a part of an overall investment strategy having risk and return objectives reasonably suited to the trust. Factors to consider in making investment decisions are as follows:
- General economic conditions;
- The possible effect of inflation or deflation;
- The expected tax consequences of investment decisions or strategies;
- The role that each investment plays within the overall trust portfolio;
- The expected total return from income and the appreciation of capital;
- Other resources of the beneficiaries;
- Needs for liquidity, regularity of income, and preservation or appreciation of capital; and
- An asset’s special relationship or value to the purposes of the trust or to one or more beneficiaries.
The trustee must exercise reasonable care, skill and caution in selecting an agent, establishing the scope and terms of the delegation and periodically reviewing the agent’s actions in order to monitor the agent’s performance and compliance with the terms of the delegation.
This is a quick overview of the many duties that a trustee must follow under the laws of North Carolina. Trustees can be held liable for not following the duties listed above. If you are a trustee of a trust, contact a specialist at Strauss Attorneys, PLLC. to be properly guided through these required duties.