Reading the Fine Print: Probate, Trusts and the Duties of a Trustee

If you own any form of assets, you’ve probably heard that you should avoid probate by putting your property in a trust. In cases where the value of an estate exceeds $150,000 — for smaller estates probate isn’t mandated — that is indeed sound advice, especially in California, where probate can be a lengthy and expensive process. But when it comes to trusts, I have often noticed that people expect that assets will pass automatically. That is not the case.

The truth is that your trust will need to be administered, meaning someone, namely the trustee, must collect, manage, invest and distribute the assets that it holds. Different from probate, which is court-moderated and therefore public, this process has the advantage of being private. But it comes with hazards of its own, especially if the structure of your assets is complicated — an ownership interest in a business comes to mind — or if you end up picking the wrong trustee.

The job of a trustee comes with numerous duties and responsibilities. Some derive from the terms of the trust, others are laid out in the California Probate Code. Among other things, it stipulates that a trustee must administer the trust solely in the interest of the beneficiaries and that she may not favor the interests of one beneficiary over those of another. She must keep the trust property separate from other assets and she has a duty to apply the full extent of her skills. The code also sets forth a trustee’s obligations for providing financial and other information to the beneficiaries.

Most trust documents provide that the trustee may receive reasonable compensation for administering the trust. Professional trustees often take a percentage of the value of the assets, commonly one to two percent, but family members serving as trustees usually waive this compensation. Does that mean that you should name your daughter, your nephew or another relative as the trustee? Not necessarily. In my practice as an attorney I have handled numerous cases where beneficiaries claimed that a trustee broke his fiduciary duties, and more often than not the trustee in question was a relative. Just because family members might work for free doesn’t mean that they have the knowledge, experience, judgment, skills and temperament that are required of a good, diligent trustee.

By Kevin J. Moore

Kevin Moore, Founder of Kevin J. Moore & Associates, is focused in the areas of estate planning, trusts and probate services with additional expertise in both domestic and international business transactions and tax planning and tax controversy representation for individuals and companies.