At common law, trustees had a fiduciary duty not to delegate tasks they can perform themselves. However, our current financial system’s increasing complexity makes it unreasonable for many trustees to manage trust assets on their own. The opportunities for investments are endless, and the sophistication of even basic financial instruments has increased since the creation of the common law duty not to delegate tasks. As a result, it is often in the best interests of all parties – including the trustee – to enlist the help of experienced professionals who can assist with investment decisions. Doing so ensures the trust’s assets are financially productive and protected.
When delegating his or her powers and duties, a trustee must use reasonable skill, care, and caution in selecting an agent and establishing the scope and terms of the delegation. This includes supervising the agent’s performance and compliance with the terms of the delegation.[1] This requirement may entail thorough research or interviews with numerous agents to find one suitable for the trust’s needs. Furthermore, a trustee’s duty is not complete once they select an appropriate agent to assist with the trust’s financial decisions. The trustee should also maintain periodic communications with the agent to ensure the trust assets are not sitting idle, unaccounted for, or otherwise mismanaged.
When determining the particular delegated acts, trustees should take into consideration the amount of discretion involved, whether the act is related to the principal or income of the trust, how much the property is worth, how much the delegation will cost, and whether the act involves professional skills possessed by the trustee.[2] Even if a trustee has a working knowledge of financial investments, trusts with unique assets may require delegation of management decisions to an agent with specialized expertise to ensure the assets are appropriately protected and invested. This may occur when a trust contains real estate that requires specialized management, closely held business interests, art collections, and intellectual property, such as royalties, patents, and copyrights.
If a trustee exercises reasonable care, skill, and caution in selecting an agent and monitoring the agent’s performance and compliance with the delegation, the trustee will not be liable to the beneficiaries for the agent’s conduct. However, if a trustee discovers a deficiency in the agent’s management of the trust, such as malfeasance or inaction, the trustee must act promptly to either remove the agent or otherwise remedy the situation to the best of the trustee’s ability.
Power Holders
In 2012, the Uniform Trust Code was amended to create a “power holder” position, also referred to as a “trust advisor.” Power holders are like agents, except power holders are delegated responsibilities by the settlor of the trust instead of the trustee. The power holder is a person who, under the terms of the trust, has the power to take certain actions on behalf of the trust. They are considered fiduciaries, except they do not have the power to remove and appoint trustees or other power holders. Like trustees, power holders are required to act in good faith an in accordance with the purposes and terms of the trust. They must act with the best interests of the beneficiaries in mind and can be held liable for any loss resulting from a breach of their fiduciary duties.
When a power holder is appointed, trustees should act in accordance with the directions of the power holder as directed by the trust. In doing so, the trustee is not liable for losses that result from compliance with the power holder’s directions, unless compliance with those directions constitutes intentional misconduct. Although a trust appoints a power holder, the trustee does not have the duty to monitor the power holder’s conduct. The trustee also does not have the duty to provide advice or to consult with the power holder, nor is the trustee required to inform the beneficiaries of the power holder’s actions or inaction.
The duty to delegate is complex, nuanced, and may require a close look at the skills and abilities of both the trustee and appointed agents. It may require a determination of whether the agent involved is a true agent, or is really a power holder by the terms of the trust. When these sophisticated questions arise, it is wise to enlist the help of an attorney experienced in fiduciary litigation that can help you navigate the attendant duties and potential breaches. For more information, visit us as www.lindleylawoffice.com.
[1] N.C. Gen. Stat. § 36C-8-807 (2015).
[2] Duties of the Trustee, National Paralegal College, http://nationalparalegal.edu/willsTrustsEstates_Public/TrustAdministration/DutiesOfTheTrustee.asp (2010).
