In California, a revocable trust is typically created to hold property so that should the person who created the trust, called a settlor, ever lack the capacity to care for themselves, the trust will hold the property for the benefit of that person during their life and then, upon their death, distribute the trust property to the named beneficiaries without having to probate the deceased person’s estate. Typically, the settlor names themselves as trustee of their revocable trust and designate successor trustees of the trust once they either lack capacity or die
A trustee is a fiduciary, which means the trustee and is obligated to manage the property in trust solely for the benefit of the beneficiaries named in the trust with good faith and honesty and is held to a high standard of conduct. A trustee is bound by the terms stated in the trust document, meaning the trustee must follow the powers and responsibilities as outlined within the trust itself as well as the California Probate Code sections applicable to trusts and decisional law created by the courts. And if the trustee does not, the trustee can be held liable for damages as a result of a breach of their fiduciary duty.
As we noted above, the trustee holds title to the property in trust for the benefit of the beneficiaries. But there is quite a bit more to it than just that. The trustee is in charge of ensuring the property held within the trust is preserved and protected for the benefit of the beneficiaries. As such, the trust will usually outline certain or typical powers
of the trustee. The trustee usually has the power to retain trust property, reinvest trust property or, with or without court authorization, sell, convey, exchange, partition, and divide trust property.
Typically the trustee will have the power to manage, control, improve, and maintain all real and personal trust property. As such, the trustee must make sure the property is properly cared for and insured in the event of a natural disaster, fire, or other unexpected hazards. Along this line, the trustee is also responsible for overseeing the payment of any bills, taxes, and other expenses related to the property in the trust.
Being a trustee is a difficult job and requires a certain skill. Because of the complexity of the position, the trustee usually has the power to employ and discharge agents and employees, including but not limited to attorneys, accountants, investment and other financial advisors, custodians of assets, property managers, real estate agents and brokers, and appraisers, to advise and assist the trustee in the management of any trust assets. And the trustee is usually allowed to compensate such agents and employees from the trust property. Sometimes trustees will have the power to operate and run a business. As such, the trustee may need to rely on various professionals in order to adhere to their duties as trustee.
Other typical trustee powers include the ability to hold securities in trust and exercise all the rights, powers, and privileges of an owner of the security including voting and proxies, etc. Another typical power of a trustee is the ability to control money and even borrow money for any trust purpose from any person or entity and obligate assets held in trust as security for the debt.
And do not forget those digital assets! We live in a time where digital assets increasingly play a role in our lives. And under California law, a trustee should have the power to control such assets.
A trustee usually has the power to enforce any obligation owed to the trust including any deed of trust, mortgage, or pledge of promissory note. And a trustee is typically able to defend the trust from any claim of a third party and use trust assets to defend that claim including the payment of professional fees to attorneys, CPAs, and the like.
A trustee will typically have the power to pay taxes and have professionals prepare tax returns. These trustee powers will usually include the power to make certain tax elections, apply for deferrals available to the estate or the trust, and determine when a particular item will be deducted or reported as income or expense, etc.
The above examples are just a few of the powers that a trustee usually holds when presiding over a typical California trust. It’s imperative to keep in mind that trustees are always bound by the language contained within the trust as well as the rules found in the California Probate Code relating to trusts. Anyone considering being a trustee or who is already a trustee should consult the Chilina Law Firm or another California attorney focusing on estate planning, trust administration, or probate for more information.
Authored by Greg Chilina and Co-Authored by Karen Chilina
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