One of the more difficult decisions our clients make in the estate planning process is who to appoint as the successor trustee of their trust. As trustee, an individual or entity is responsible for gathering and managing trust assets, filing trust tax returns, and distributing assets according to the terms of the trust. This role is governed by certain legally required duties, such as the Duty of Impartiality (i.e., no favoritism between classes of beneficiaries) and the Duty of Loyalty.
The Michigan statute codifying the Duty of Loyalty states that “[a] trustee shall administer the trust solely in the interests of the trust beneficiaries.” § MCL 700.7802(1). In practical terms, trustees should adhere to the following set of guidelines to ensure that they are not breaching their Duty of Loyalty:
- Do not place the interest of the trustee above the interest of any beneficiary;
- Do not engage in acts of self-dealing;
- Do not commingle trust funds with the trustee’s personal funds;
- Do not withdraw trust funds for the trustee’s personal use;
- Do not use the trust assets (e.g., a home, a vehicle) for the trustee’s personal use; and
- Do not purchase or rent trust assets below market value.
Courts have long considered the Duty of Loyalty to be the most important duty of all, and for good reason – trusts are created for the benefit of the beneficiaries, not the trustees. As such, any time a potential violation of this duty has occurred, courts will look at this legally required duty very carefully.
While there are many instances when trustees blatantly and knowingly violate the Duty of Loyalty, there are also times when trustees may inadvertently violate this duty simply because they are unaware of the contours of the law. The attorneys of La Grasso, Abdo & Silveri, PLLC encourage our clients to set up a “Successor Trustee” meeting with us some time after they’ve set up their estate plan. This allows our attorneys the chance to meet with the client and the successor trustees so they can explain the role and its inherent duties. This will hopefully alleviate some of the burdens and concerns the future trustee may have. Building the relationship between attorney and successor trustee early provides a level of comfort so that if challenges or questions arise after the client’s death, the successor trustee has a familiar face to which they can turn.