Every trust must have a trustee. In a family trust, this is usually the same person(s) who created the trust. Most small estate trusts will typically own only a few assets – primarily a house. If, for example, the trust is owned by mom and dad (called the trustors) and they are also the trustees, there is not much that they need to do to perform their duties as the trustees. They will basically go on with their lives as usual.

But if they die or become incapacitated, then a new trustee will need to take over. When this occurs, that new trustee owes certain duties to the trustors and beneficiaries.

The single most important duty is a fiduciary duty. That is, the trustee must carry out the exact instructions that are stated in the trust. There can be no comingling of assets, no self-dealing, and no sweetheart loans made to the trustee. The trustee’s fiduciary duty is to manage and conserve the trust assets in compliance with the trust’s written instructions.

Sometimes, a trust will grant the trustee the authority to make discretionary decisions. For example, a trust may state that when the trustor passes away, then a certain percentage of the trust assets are to be given to a child. The trust may state that the trustee is to manage that child’s inheritance and to pay for the child’s education (including tuition and room and board) until s/he reaches 25 years old. At that time, whatever is left of the child’s trust percentage is to be distributed with no more strings attached.

Under this scenario, the trustee’s duties include some discretion on how the inheritance is to be paid. Perhaps the child wants to attend a private university, in which the tuition and room and board costs will exhaust the inheritance within two years. On the other hand, a less expensive college may allow the child to attend for four years and graduate without depleting the child’s entire trust share.

In California, the Probate Code offers some guidelines on how a trustee must operate in properly adhering to their duties as a trustee. Overall, the trustee must take many factors into consideration before making a decision that affects a beneficiary. General economic conditions, tax consequences, and a reasonable evaluation of the overall financial impact are required of the trustee.

A primary purpose in establishing a trust is to avoid probate but also to keep out of court, in general. However, when disputes arise as to whether the trustee is properly carrying out their duties, the trustee can ask the court to render instructions or approve a proposed act.

Similarly, a beneficiary who feels that the trustee is not acting properly, can request the court to rule on the trustee’s decision or even remove the trustee (for breach of duty) and have them replaced by another trustee.

In evaluating whether a trustee is acting properly, it is important to look to the language of the trust and the written instructions given by the trustor(s). When decisions allow for discretion, the trustee must act reasonably after taking into consideration the matters discussed-above. In doing so, the trustee will have performed the fiduciary duties imposed and the purpose of the trust will have been properly carried out.