If you are considering setting up a trust, it’s critical to select the right trustee to oversee it. A trustee has important obligations and responsibilities when it comes to managing, controlling, and administering a trust. Since trustees are given a substantial amount of power, Illinois law imposes certain duties on them to ensure the trusts for which they are responsible are handled properly and prudently. It’s essential to understand the duties of a trustee to help ensure you make an informed decision concerning who you should appoint as custodian for the assets in your trust.
What is a Trustee?
A trust is a strategic tool commonly used in estate planning to hold assets or property for the benefit of a third party. There are three parties involved in these arrangements: (1) the settlor who creates the trust; (2) the beneficiary who receives distributions from the trust; and (3) the trustee who manages and administers the trust property.
In Illinois, a trustee can be an individual or an institution — each option has various advantages and disadvantages, depending on the type of trust and the settlor’s objectives. Importantly, when an individual is selected to take on the role of trustee, a settlor can evaluate for themselves whether they are responsible and trustworthy. But although family members and friends may have insight into the settlor’s unique situation, they may lack experience in making investments and distributions. Alternatively, an institution can usually offer extensive resources and expertise.
Regardless of whether an individual or an institution is selected as trustee, it’s crucial to understand that the same duties and fiduciary responsibilities must be carried out.
What Are the Duties of a Trustee?
When a trustee accepts a trusteeship, Illinois law requires that they administer the trust in accordance with its terms and purpose in good faith. Specifically, the Illinois Trust Code outlines the duties of a trustee. These duties include the following:
- The duty of loyalty — The duty of loyalty requires that a trustee act in the best interests of the beneficiaries and avoid any conflicts of interest that may arise. This duty prevents a trustee from taking advantage of the trust for their own personal gain.
- The duty of impartiality — If a trust has two beneficiaries or more, the trustee has a duty to act impartially when investing, managing, and distributing the assets in the trust. In other words, all beneficiaries must be treated equally. A trustee cannot favor one beneficiary over another.
- The duty of prudent administration — A trustee has a duty of care to invest assets prudently with the primary objective of maintaining or increasing their value. This requires exercising reasonable care, skill, and caution. Depending on the type of assets, a trustee may need to seek investment advice, have appraisals conducted, and hire an accountant or property manager.
In addition, a trustee has a duty to not delegate the performance of any acts that require the exercise of their own judgment and discretion to others. However, the Trust Code allows a trustee to assign certain duties and powers that a prudent trustee of similar skills could properly delegate under the circumstances. In such cases, they have a responsibility to take reasonable care and caution while selecting an agent and establishing the scope of the delegation. They must also periodically review the agent’s actions.
What Happens if a Trustee Violates Their Duties?
When a trustee violates their fiduciary duty, a beneficiary may be eligible to take legal action. There are certain instances recognized by Illinois law in which a beneficiary, settlor, or co-trustee may request that the trustee be removed. For example, if a trustee commits a serious breach of trust, co-trustees cannot cooperate, or there has been a substantial change in circumstances, the court may remove a trustee. Additionally, a trustee can also be removed based upon unfitness, unwillingness, or a persistent failure to administer the trust effectively.
In some cases, such as those involving instances of self-dealing, wrongdoing on the part of the trustee may be obvious. In other situations, a trustee may simply have made poor decisions. While there are no definitive criteria regarding the degree of breach necessary to remove a trustee, Illinois courts typically look to malfeasance as the determinative factor. There is a strong possibility a court will remove a trustee if their breach of fiduciary duty stems from intentional wrongful conduct. However, courts do not always find that mismanagement of a trust is sufficient to warrant removal, provided the trustee exercised reasonable care and caution.
If a court determines that a trustee’s behavior was egregious, fraudulent, wanton, malicious, or grossly negligent, a trustee may be required to pay punitive damages. A court might also order a trustee to pay surcharges for any damages to the estate, as well as deny them the fees to which they would otherwise have been entitled for managing the trust investments.
Contact a Knowledgeable Illinois Trusts and Estates Attorney
A trust can be an integral component of a comprehensive estate plan. Whether you are planning your estate, or have been appointed as a trustee, an experienced attorney can provide you with the guidance you need. Located in Rolling Meadows, Illinois and serving clients throughout the Northwest suburbs and Chicago area, Hess Law Firm offers skilled counsel for estate planning and litigation matters. Call (847) 367-6990 or email firstname.lastname@example.org today to schedule an appointment.