In Part 2 of this series, we examined trustees’ duties of loyalty and impartiality. This post will examine the duty to administer trusts prudently and Part 4 will discuss the duty to delegate – or not delegate – in more depth. The duty to administer trusts involves the basic values of good faith, while the duty to inform, report, and maintain adequate records involves the reasonableness of a trustee’s actions. While these principals seem straight forward, they are a bit nuanced in practice.
Duty to Administer Trusts Prudently
The duty to administer trusts prudently mandates trustees carry out the intentions of the trust’s settlor. The trustee must administer the trust in good faith and in accordance with both the terms of the trusts and the interests of the beneficiaries.[1] Although the settlor can modify these duties within the terms of the trust, this duty is required and cannot be discharged.[2]
In effectuating this duty, trustees must use the same reasonable care, skill, and caution that a reasonably prudent person would. As with many aspects of the law, trusts do not exist in a vacuum. That is, trustees must consider the purposes, terms, distributional requirements and other circumstances associated with the trust.[3] The trustee must apply his or her common sense to the situation and be reasonable in his or her actions related to the trust.
Some more specific duties related to the duty to administer trusts prudently are the duty to take control and protect trust property,[4] the duty to collect trust property,[5] the duty to insure trust property,[6] and the duty to abandon trust property of insufficient value or benefit to justify the costs of administration.[7]
Duty to Inform, Report, and Maintain Adequate Records
Trustees also have a duty to keep adequate records of the administration of the trust as well as to keep trust property separate from their own property.[8] The record keeping requirement encompasses a duty to provide reasonably compete and accurate information as to the nature and amount of the trust property. These records must be provided to the beneficiaries periodically. In the event that a beneficiary makes a reasonable request, the trustee must provide a copy of the trust instrument, provide reasonably complete and accurate information as to the nature and amount of the trust property, and allow the beneficiary or his or her agent to make reasonable inspection of the trust’s subject matter and any documentation pertaining to it.
Like the duty of good faith, The Uniform Trust Code requires compliance with the duty to inform, report, and maintain adequate records. When facing trust provisions that waive the trustee’s responsibility to provide accountings, the Court of Appeals held that any trust without accountability contradicts its own terms.[9] As a result, the Court recommended that the duty to inform, report, and maintain adequate records be codified by the state legislature.
The duty to administer the trust prudently may seem relatively straight forward, but potential breaches of this duty must be viewed in light of the trusts terms and the circumstances surrounding the trust. Likewise, the duty to inform, report, and maintain adequate records appears to be primarily administrative in nature. However, even administrative duties must be taken seriously because they are vital to a trustees fiduciary duties in that they determine what type of foundation the trustee’s remaining duties rest. If you are concerned that these fundamental duties are not being met by the trustee of which you or a loved one are a beneficiary, it may be prudent to consult an experienced attorney to determine whether a breach has occurred. For more information, please visit us at www.lindleylawoffice.com.
[1] N.C. Gen. Stat. § 36C-8-801 (2015).
[2] N.C. Gen. Stat. § 36C-1-105(b)(2) (2015).
[3] N.C. Gen. Stat. § 36C-8-804 (2015).
[4] N.C. Gen. Stat. § 36C-8-809 (2015).
[5] N.C. Gen. Stat. § 36C-8-816(1) (2015).
[6] N.C. Gen. Stat. § 36C-8-816(11) (2015).
[7] N.C. Gen. Stat. § 36C-8-801(16) (2015).
[8] N.C. Gen. Stat. § 36C-8-810 (2015).
[9] Wilson v. Wilson, 203 N.C. App. 45, 690 S.E.2d 710 (2012).
