Duty of Loyalty
All trustees owe a duty of loyalty to trust beneficiaries whenever they engage in activities on behalf of the trust. The duty of loyalty prevents a trustee from engaging in transactions on behalf of the trust for personal gain. In the event the trustee profits from a transaction, such as using his discretionary purchasing power to sell personal property to the trust, the beneficiaries retain the right to void the transaction and hold the trustee responsible for all costs the trust incurs. However, a trustee doesn’t breach his duty of loyalty if the trust document authorizes such a transaction or the court approves it.
Control and Protection
If the grantor of the revocable trust requires that the trustee continue to administer the trust after her death, the trustee continues to have an unconditional obligation to protect and control trust assets. However, the duty to protect trust assets only requires that the trustee act reasonably. If the trust owns tangible personal property, such as valuable artwork, the trustee must retain possession of the artwork or closely monitor an agent to whom he delegates the responsibility. However, the trustee has no duty to protect the artwork if doing so presents risks of personal injury or other significant damage to the trustee.
Duty of Confidentiality
Most states impose a duty of confidentiality on trustees. In California, for example, unless the trustee engages in a transaction on behalf of the trust that requires the disclosure of information, such as the names of the trust’s beneficiaries or its net worth, the trustee must keep this information confidential. However, in the event a trustee breaches this duty, beneficiaries must prove that they or the trust incur damages as a result of the breach to obtain a court award against the trustee.
All states impose a duty on the trustee to provide an accounting of trust assets to beneficiaries. In California, for example, the trustee must provide beneficiaries with financial statements that disclose all trust assets, liabilities, earnings, expenses and distributions. States can vary as to the frequency in which the trustee must provide an accounting to beneficiaries, but in California, the trustee must provide a financial report on an annual basis. However, when the beneficiaries request additional accountings and give the trustee reasonable notice, the trustee has an obligation to comply with the request.