Understanding Trustee Deeds and Duties - Werner Law Firm
Trustees' Deeds and Duties - Werner Law Firm

Trustees’ Deeds and Duties

A trustee is anyone managing a trust in the name of a grantor or trustor, for the benefit of a beneficiary. Trustees have a fiduciary duty to act in a trust’s beneficiary’s best interests, managing the trust until it is completed or terminated. This goes for living trusts and testamentary trusts, as well as deeds of trust.

Rather than thinking of a trust as an estate planning document, think of a trust as an agreement between several parties, wherein the trustor created the trust, the trustee manages the trust by holding property or assets “in trust”, and the beneficiary stands to benefit from the trust once it has concluded, or throughout the process of inheritance.

The Role, Responsibilities of a Trustee

In most trusts, the trustee handles the administrative tasks associated with managing a trust until the trust is terminated, which occurs when all property within the trust has been allocated to the right beneficiaries. Some trusts go on for years, under explicit instructions to manage a beneficiary’s finances, or trickle the contents of the trust to the beneficiary in small amounts. It is the trustee’s fiduciary duty to oversee this process and ensure that the trust is executed properly.

If a trust has multiple beneficiaries with separate instructions, such as in a charitable trust where the remainder of the estate passes onto a charity of the grantor’s choosing, the trustee must act accordingly. A trustee is obligated to act in the interest of the trust’s beneficiaries, and not in his or her own interest. If a trustee breaks this fiduciary duty in any way, they are liable for a breach of fiduciary duty.

All trustees are bound by fiduciary duty to the trust’s beneficiaries. In a deed of trust, for example, a trustee is technically bound to neither the beneficiary (the lender) nor the grantor (borrower). But they are still obligated to protect the lender’s rights. In the case of a deed of trust, the aim is not to protect your property for inheritance or prime it for transfer to another generation, but to receive a property to live in while you sort out the financial details to repay your loan for said property.

The trustee, in this case, is an ideally unrelated third party with no ties to the lender or the borrower. All three parties have different responsibilities in such a given situation. The lender’s responsibility is to see to it that they receive their dues. The borrower’s responsibility is to pay the lender. The trustee’s responsibility is to hold the property for the borrower or the lender, technically holding it in trust for both – yet they invariably work to make the lender whole as best as possible, if the borrower cannot pay back their loan.

Usually, a trustee is appointed through a company or business unaffiliated with both the lender and the borrower. All three must agree to the designation. Once a trustee is chosen for a deed of trust, the trustee must administer the trust deed. This usually means holding the title for the property while the borrower lives in it. If the borrower has completed their end of the bargain, it is up to the trustee to facilitate the process of conveying interest back to the borrower, thus giving them full control over the property. At this point, there is typically no interaction between the lender and the borrower – just between the lender and the trustee, and then the trustee, and the borrower.

Should a borrower fail to pay the lender what they are owed, it is the trustee’s responsibility to see to it that the borrower’s home is foreclosed. This is the trustee’s fiduciary duty to the beneficiary – to act in the lender’s interests, should the grantor default. This means handling the paperwork, filing the Notice of Default, and seeing to it that the borrower is removed from the property – and then seeing to it that the property goes onto the market. The trustee is obliged to find the best possible deal to sell the property once again, to reimburse the lender for the majority or all of their losses, if possible. If said buyer has a lender, then the title is conveyed to the new buyer’s lender and subsequent new trustee, while the old lender receives what they are owed or as much as could be recovered from the process.

Because of the nature of things – the trustee holding the property in trust for the lender and borrower until the borrower pays the lender – impartiality is important. That’s what sets a trustee in a deed of trust aside from most trustees in other trusts, who tend to be friends or family members related to the grantor.

Understanding Estate Planning

Most trusts are used to secure property from probate, and better describe how it might pass from you to your family and friends. Because most trusts go into effect immediately and not at the time of your passing, they override a will, as wills only describe the property that passes through probate.

A trust can be used to keep your wealth out of the hands of creditors, protecting specific assets for your children. A trust can also be used to better manage a child’s finances, by controlling how much of their inheritance is available to them at any given moment. Aside from better control, a trust also affords you the comfort of knowing your assets and financial details are kept private once you pass away, rather than landing in the public record.

Trusts can be costly, and confusing. While a last will and testament is a last will and testament, trusts can be used for a wide range of different purposes. It is a good idea to consult a professional to discuss your options and explore how you may be able to use trusts to your advantage, for estate planning or otherwise. Don’t let the options catch you off guard – or worse, don’t let old and forgotten documents put a hamper on your estate plans. It’s always better to be safe than sorry.

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