Dealing with the legal aftermath of a loved one’s passing can become complex, emotional, and time-consuming — particularly if you are named to serve as a trustee during the administration of your loved one’s estate.
Put simply, a trustee is the person responsible for managing and distributing any of the assets held in a trust, while also handling several important duties that may arise during the course of trust administration — including overseeing tax filings for the trust and communicating with beneficiaries of the trust.
A trustee is a fiduciary, meaning that they are held to a high legal standard of conduct. In executing his or her duties, a trustee is expected to put the needs of the trust and its beneficiaries above their own. To be a fiduciary means serving with “undivided loyalty,” remaining impartial, being careful and prudent in their actions (including making investments on behalf of the trust), and keeping trust assets separate from their own.
Interested in learning more about this important role? Let’s explore some important FAQs about trustees in Michigan:
What Is a Trust?
A trust is a written agreement created by a settlor or grantor that names an individual who is responsible for managing property as directed by the trust agreement. This person is the trustee. The settlor may also add successor trustees, who would take on the responsibilities of the trustee should the original choice be unable to do so.
Trusts are a popular estate planning tool because they can allow certain assets to bypass administration in the courts —which can help simplify and streamline the probate process, while also helping shield the privacy and finances of the decedent and their family. Trusts are also growing in popularity because they are dynamic, and can help give the decedent a high level of control over their assets and beneficiaries, even after they’re gone — from determining when and how a beneficiary may receive their inheritance, to designating what funds should be set aside for charity or even the care of a pet.
There are many different types of trusts which can be used to suit your needs. An experienced probate attorney can assist you on choosing what option is the best fit for your circumstances, estate, and beneficiaries.
Broadly speaking, the most popular type of trust in the U.S. is known as the inter-vivos or revocable living trust. One of the practicalities of creating such a trust is that you would typically assign yourself as the trustee. This way, you remain in complete control of your trust assets for as long as possible. In the event that you can no longer perform your duties, the responsibilities would legally be granted to your successor trustee.
For this reason, it’s important to nominate a successor trustee who can handle the responsibilities, abide by your wishes, and follow the directions set down by the structure of your trust. Many people choose a spouse or a trusted family member to serve as trustee; you may also name a professional, such as an attorney or financial consultant.
What Are the Responsibilities and Duties of a Trustee?
The Michigan trust code states that upon acceptance of a trusteeship, the trustee shall “administer the trust in good faith, expeditiously, in accordance with its terms and purposes, for the benefit of the trust beneficiaries, and in accordance” with the law.
More specifically, a trustee has several important duties and legal obligations to execute, including:
The Duty of Loyalty
The duty of loyalty states that a trustee shall administer the trust solely in the interests of the trust beneficiaries, and avoid conflicts between the trustee’s fiduciary and personal interests — particularly involving the investment and management of trust property. Crucially, a sale, encumbrance, or other transaction involving the trust property may be presumed to be affected by a conflict if it involves the trustee’s spouse or another family member, an agent or attorney of the trustee, or a corporation or enterprise in which the trustee owns a significant interest that might affect their best judgment.
Managing, Controlling, and Distributing Trust Property
A trustee has many key responsibilities involving trust property, including:
- Taking reasonable steps to control and protect the trust property — using general powers that are appropriate to achieve its proper investment, management, and distribution
- Following the standards of Michigan’s prudent investor rule
- If the trustee has special skills or is named trustee on the basis of their skills or expertise, the have a duty to use those skills for the benefit of the trust
- Keeping adequate records of the administration of the trust
- Keeping trust property separate from their own property
- Taking reasonable steps to enforce claims of the trust (and defend claims against the trust)
- Taking reasonable steps to locate trust property, including compelling another person to deliver property to the trustee
- Responding to tax matters affecting the trust
- Following proper procedures for terminating the trust and making distributions
Duty to Inform and Report
A trustee is obligated to keep qualified trust beneficiaries reasonably informed about the administration of the trust, and any material facts that are necessary for them to protect their interests. Broadly speaking, trustees must respond promptly to a trust beneficiary’s requests for information. If requested by a beneficiary, a trustee should also be able to promptly furnish a copy of the terms of the trust that describe or affect the beneficiary’s interest, and relevant information about the trust property.
Trustees are also required to send out notices when they accept the trusteeship, or if there are any changes to their rate or methods of compensation.
At least once per year and at the termination of the trust, the trustee must also send a thorough report of the trust property, liabilities, receipts, and disbursements, including details of their compensation as a trustee, and a list of all trust property and its market value.
Can More Than One Person Act as a Trustee?
Yes, a settlor may nominate more than one person to serve as trustee. These parties may act as cotrustees or as separate trustees. Broadly speaking, cotrustees oversee the administration of the entire trust together, and act by majority decision. A separate trustees provision causes trusteeship of the aggregate trust to be divided into multiple sets of fiduciary responsibilities, each allocated to a separate trustee. An example may be having one trustee who oversees investments, and another who manages distributions.
Do I Have to Accept the Position?
A person appointed as a trustee or successor trustee has the option of accepting or rejecting the role.
Under the Michigan trust code, a person designated as trustee accepts the position by either
- substantially complying with a method of acceptance provided in the terms of the trust, or
- accepting delivery of the trust property, exercising powers or performing duties as trustee, or otherwise taking action indicating acceptance of the trusteeship
A person designated as a trustee who has not yet accepted the trusteeship may reject the responsibility. A person who is serving as trustee may also resign from the position, provided that they provide at least 28 days’ notice to qualified trust beneficiaries, the holders of powers of appointment,and all cotrustees, and have the approval of the court.
If a trustee rejects or resigns from the trusteeship, this leaves a vacancy which is typically filled in order of priority — first in the manner designated by the terms of the trust, and then by a person appointed by the court, if necessary.
Can a Trustee Be Removed?
There may be times when beneficiaries may need to contest the actions of a trustee, which can include having them removed from the trusteeship. Broadly speaking, a settlor, a cotrustee, or a qualified trust beneficiary may request the court to remove a trustee, or a trustee may be removed by the court on its own initiative.
There may be grounds for removal of a trustee if:
- The trustee commits a serious breach of fiduciary duty
- Lack of cooperation among cotrustees substantially impairs the administration of the trust.
- The court determines that removing the trustee would be in the trust’s best interest, generally because of their unfitness, unwillingness, or persistent failure to administer the trust effectively
- There has been a substantial change of circumstances, and the court finds that removal of the trustee best serves the interests of the trust beneficiaries, is not inconsistent with a material purpose of the trust, and a suitable cotrustee or successor trustee is available
A trustee who has resigned or been removed must proceed to promptly deliver the trust property in their possession to the cotrustee, successor trustee, or another person entitled to it.
Before removing the trustee, the court may take other steps to remedy a breach of trust that has occurred or may occur, including (but not limited to):
- Compelling the trustee to perform their duties
- Compelling the trustee to redress a breach of trust by paying money or restoring property
- Ordering a trustee to account
- Appointing a special fiduciary to take possession of the trust property
- Suspending the trustee
- Reducing or denying compensation to the trustee
If you suspect that a fiduciary has committed a breach of fiduciary duty, it is imperative to consult with an experienced probate litigation attorney who can help you understand what steps you may take, and aggressively advocate for your position in a contested probate matter.
Can a Trustee Be Compensated?
A trustee is entitled to be compensated. If the terms of a trust do not specify the trustee’s compensation, a trustee is entitled to compensation that is reasonable under the circumstances. If the terms of the trust do specify the trustee’s compensation, the court may allow more or less if the duties of the trustee are substantially different that what would have been expected when the trust was created, or if the compensation specified would be unreasonably low or high.
A trustee may also be entitled to be reimbursed out of the trust property, with interest as appropriate, for expenses that were properly incurred in the administration of the trust, or to the extent necessary to prevent unjust enrichment of the trust (for expenses not properly incurred in the creation of the trust).
Probate and Estate Administration Can Be Complex. You Don’t Have to Go Through It All Alone
Whether you are thinking ahead to the creation of your estate plan or have been named to serve as a successor trustee for a family member, you probably have questions.
If you have accepted the responsibilities of administering a trust, our experienced trust attorney Dean E. Patrick can provide informed professional advice to guide you through the legal process, explain your obligations as a fiduciary, and help you discharge your duties in an efficient and expedient manner to avoid personal liability. And if a contest should ever arise, Mr. Patrick can help right the ship, drawing from his extensive experience with litigating contested probate matters. Mr. Patrick has years of experience as a practicing attorney and is ready to aggressively fight for you.
If you are considering a trust as part of your overall estate plan, Mr. Patrick can help you dot the “i’s” and cross the “t’s.” Mr. Patrick would be happy to help you consider the potential benefits of different types of trusts, and assist in the creation of a trust that works for your unique situation — while ensuring that all legal formalities are addressed.
Have any more questions about the role of the trustee in Michigan? The Patrick & Associates, PLLC. is available 24/7. Whatever your situation, Mr. Patrick is keen on hearing your circumstance and even keener in finding a solution to a desired outcome. Contact Dean E. Patrick at his Southfield, Michigan office at (833) 469-4897 or click here to arrange your initial consultation.
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