Effective Trust Administration

Even in the case of simple estate planning, more and more individuals are utilizing the safety and flexibility of trusts in order to accomplish their goals. Marital, bypass and contingent trusts, just to name a few, are becoming more prevalent in wills and routine estate planning ever day. These tools can sometimes offer very attractive results, such as greater control, tax savings or creditor protection. They also often require maintenance and guidance long after the terms are written. Spouses, children and even trusted friends can easily find themselves named as trustees, with little to no understanding of the rights, obligations and liabilities that come with the job.

In the simple case of a married couple with two young children, the couple’s Wills might direct that the Estate of the surviving spouse pass into trust for the kids at his or her death. The Will might appoint the husband’s brother as Trustee, with instructions to hold and manage the property until the children reach the age of 30, at which time they will receive it with no strings attached. Perhaps the good uncle is authorized to make distributions from the Trust to the children, until they turn 30, for their health, education, maintenance and support, as he deems fit in his discretion.

Does the uncle owe the children any legal duties? Must he keep the current property, or can he invest it differently? Do the children have a right to complain if the uncle invests the Trust property unwisely? Can the uncle send the good child to Harvard, leaving the prodigal one only enough funds to attend the local community college? These are questions that linger long after mom and dad came into to plan and draft their Wills, and the legal relationship between the uncle and the children invokes decades of developed fiduciary law in Texas.

Well-drafted Wills and Trusts will expressly outline a Trustee’s duties and responsibilities. Even where these terms are absent, the Texas Trust Code fills most of the gaps. At a minimum, our uncle will owe his niece and nephew specific duties of loyalty, reasonable care, impartiality and full disclosure. The children may have the right to demand an accounting from the uncle to better understand his administration. All three might even collectively agree to terminate the trust before the children turn 30.

Trusts are as unique as the individuals for whom they are drafted. However, many of the common principles, rights and obligations of effective trust administration apply regardless of the language used. Beneficiaries should be well-advised of their rights and the limits of their ability to compel a trustee to act. Trustees, likewise, should be well-advised of how to administer the Trust competently, effectively and within the scope of the fiduciary laws of Texas.