Trust Administration and Fiduciary Duties
Core Duties
The trustee owes the beneficiaries the duties of loyalty, impartiality, prudence, and accounting. Loyalty forbids self-dealing and conflicts; impartiality requires balancing income and remainder beneficiaries; prudence (the prudent investor rule) governs investment and diversification; and the duty to account requires informing and reporting to beneficiaries. California's Probate Code also imposes a duty to administer according to the trust terms and to defend the trust.
Administration Mechanics
Know the trustee's powers (express and statutory), the process for resolving disputes (petition to the court, accounting), and the rules on delegation and co-trustees. Traps include: confusing the trustee's duty with the personal representative's probate duties; assuming a trustee can ignore trust terms for beneficiary benefit; and missing the distinction between mandatory and discretionary distributions. Removal, surcharge, and breach remedies are frequently tested.
Beneficiary Rights
Beneficiaries are entitled to reasonable information about the trust and its administration, but the settlor can limit disclosure in some circumstances. A beneficiary may petition for an accounting, removal, or surcharge.
Worked Example
A trustee holds a concentrated stock position inherited from the settlor. Prudence does not demand immediate sale, but the trustee must evaluate risk, document the analysis, and consider diversification consistent with the trust's purposes. If the trustee instead sells to a company he owns at a favorable price, that is self-dealing and a breach of loyalty, regardless of whether the trust profited.
Rule of Thumb
Ask three questions: Did the trustee act loyally? Prudently? And with equal regard for income and remainder beneficiaries?