The executor of a living trust, normally referred to as a trustee, is the party responsible for administering trust assets for the benefit of its beneficiaries. A trustee may be either an individual or a company. Trustees are bound by certain legal duties and may face civil or even criminal liability for breaching them.
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Duties Imposed by the Trust Deed
The trust deed, written by the trust grantor, defines the trustee's authority to administer trust assets. The trustee may not exceed the limits of his authority as set forth in the deed. This is so even if the grantor names himself as trustee: once the trust is established, he must administer it according to the terms of the trust and for the benefit of the beneficiaries. The trust deed may grant the trustee either limited or broad powers. For example, the deed may instruct the trustee exactly when to distribute trust assets and exactly how much to distribute to each beneficiary. A broad grant of authority may authorize the trustee to invest trust assets and distribute any profits to the beneficiaries.
Regardless of the contents of the trust deed, the trustee is bound by the legal fiduciary duties of care and loyalty. The duty of care obligates the trustee to manage trust assets with the same prudence a reasonable person would exercise when managing his own assets. The duty of loyalty obligates the trustee to manage the trust in the best interests of the beneficiaries. He may not profit from his administration of trust assets (except for receiving any fee authorized by the trust deed). The trust beneficiaries can sue him for the value of any unauthorized benefits he received from his administration of the trust, even if the beneficiaries were not harmed by his receipt of these benefits. If he commits fraud, he may be subject to punitive damages or even criminal prosecution.
The trustee must file income tax returns on behalf of the trust and pay any amounts due out of trust assets. He must pay any other applicable taxes (such as property taxes on real estate held by the trust). The trust, however, will be taxed as a separate entity only if it is irrevocable. Otherwise, the grantor is responsible for all taxes arising from trust assets and income. The trustee must pay any other debts arising from trust property. He must provide the beneficiaries with a periodic accounting of the disposition of trust assets, if the trust deed so instructs. He must keep accurate records of the disposition of trust property.
The trustee must distribute trust assets, either as directed by the trust deed or according to his own discretion within the authority granted to him by the trust deed. This may require him to liquidate trust assets by, for example, selling trust stock or real estate and distributing sale proceeds to beneficiaries. Since trust assets are held in the name of the trust (the "John Doe Trust Fund," for example), the trustee must establish his authority to sell trust property. This will require him to show the trust deed naming him as trustee to buyers and governmental authorities (when title to real estate is transferred, for example) .
References & Resources
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