The trustee does not act as the agent or employee of the trust; a trustee is instead the embodiment or legal personification of the trust in dealing with trust property and in making contracts that affect trust property. If a trust sues a third party or a current or former trustee, the amount recovered belongs to the trust, not its beneficiaries.
A trustee must carry out the terms of the trust as directed by the settlor, unless a judge declares the terms invalid. The tendency today is to give the trustee broad power of sales for both real and personal estate. In some cases, even where such power is not expressly given, it will be implied from the nature of the duties that the trust calls upon the trustee to perform.
Trustees must exercise good faith and act solely in the interests of the beneficiaries. They must dispense with all self-interest, particularly if it becomes adverse to the rights of the beneficiaries. The office of trustee can never be used for personal advantage or gain except for reasonable compensation for the trustee's work. A trustee owes trust beneficiaries the duty of good faith and loyalty, a duty not to engage in self-dealing conduct, a duty to fully disclose possible conflicts of interest and a duty to always segregate trust property from the trustee's personal property.
The general principle governing the conduct of fiduciaries dealing with trust property, funds or assets is they are never allowed to derive any personal gain or advantage from the use or sale of trust property. Fiduciaries must account for and remit all profits arising from such improper use, if profits are made by misconduct. A trustee must fully disclose to all beneficiaries all facts surrounding any self-interested transaction and obtain fully informed consent. However, trustees are allowed to receive modest and reasonable fees for their work. Many nonprofessional trustees work for free and are not paid at all if the trust assets are relatively small.
"As Trustee"
The single most important role of a trustee is representing the trust and officially acting in its name. Trustees act most properly and safely when expressly named "as trustee." With that designation, trustees may enter contracts, be listed as owning bank accounts or other assets of the trust and may conduct all business for the trust. This means that trustee John Greene signs only "John Greene as Trustee of the Marc Greene Family Trust" in any transaction for the trust. A title or bank account name of a trust will typically read "X as Trustee of the Y Trust." If a trust is amended, official records must also change: After an amendment, John Greene now signs only "John Greene as Trustee of the Marc Greene Family Trust as Amended and Restated." Failure to follow these signing protocols could cause the trustee to be held personally obligated for debts intended to be obligations of the trust.
Most trusts own and invest assets, including securities, and trustees may be asked to make investments or supervise portfolios, in which case they are subject to the "prudent investor" duty. Such trustees must conduct themselves faithfully and exercise "sound discretion." The prudent investor rule is not simple or clear in application; it's flexible, and any guidance it offers is general in nature. It values common sense and practical experience. Prudence in any given case is determined based on the specific facts.
The prudent investor rule dictates that a disproportionate part of a trust fund or trust assets should not be invested in any single kind of stock or bond, or other single assets. Other issues, such as how to react to fluctuating market conditions, are more fact sensitive. There is, however, a duty to dispose of improper investments within a reasonable time, and a trustee may be held responsible for any loss by failing to identify improper investments.
Fortunately for trustees, trusts can allow day-to-day investment decisions to be delegated. In such cases, trustees may employ investment advisors and pay them reasonable compensation out of the trustee's fee or, if permitted by the trust, out of trust assets. The fact that there may be some conflict of economic interest between a trustee and beneficiary in hiring the advisor is inevitable and is in no way improper.
In addition to care and protection of trust assets, a trustee is, unless excused, also under a separate duty to keep and render "accounts." Accounts for trusts are records of all assets, liabilities and expenditures. When called upon for an accounting, the trustee has the burden of proving-sometimes in court-that he properly disposed of all assets or funds received in trust.
A formal accounting is a judicial proceeding in which the court adjudicates the amount of funds that ought to be in the possession of the trust and makes a determination of any amounts for which the trustees are liable to the trust or beneficiaries. Because the burden of proof in judicial accounts is on the trustee to account for all money or property held in trust, it is also the duty of the trustee to maintain clear and complete records. Destruction of trust records constitutes a violation of the fiduciary duty and trustee ignorance of that fact is not a valid excuse.