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So Now You Are a Trustee

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investor rule” generally means that you were not intentional or negligent, and for will diversify the investments, balance that reason, many trustees secure Errors and the need for income versus long- Omissions insurance. term principal growth, not make risky investments, and continue to reevaluate Compensation and Expenses and consider new advice on an ongoing You are generally entitled to reasonable basis. compensation and reimbursement of out-of- • Distributions to Beneficiaries. You are pocket expenses related to the administration often required in the trust agreement to of the trust from the trust’s assets. make distributions to beneficiaries. The Reasonable compensation is determined on terms under which distributions must a case-by-case basis and good record keeping or may be made can differ greatly from and accounting is absolutely necessary. Any trust agreement to trust agreement, and compensation is considered income to you and may be mandatory for the beneficiary’s as such, is generally taken as a tax deduction health, education, and maintenance. by the trust. You may have discretion for whatever In addition to your own fees and expenses, you you determine to be in the best interest may hire professionals, including an attorney, of the beneficiary. Under certain accountant, etc. as you administer the trust. circumstances you may be personally Fees, anticipated expenses, and professional liable for improper distributions, and fees are usually disclosed in the annual may be compelled by a Court to make a accountings. distribution at the beneficiary’s request. While you are ultimately accountable and unless otherwise specified in the trust agreement, you may employ the use of professionals and other agents in order to administer the trust. So Now You Are A Trustee Some trust agreements may call for co-trustees, but each remains equally responsible, and must report any misconduct by a co-trustee as it would be against the best interest of the trust and the beneficiaries if the behavior was allowed to continue. Personal Liability You may be personally liable to the beneficiaries for any loss to the trust estate and for any gain the trust estate should have realized if you: (Updated January 2012) This pamphlet is published as a • Failed, for any reason, to exercise the public service by the Colorado Bar Association. Its purpose is care and skill of a person of ordinary to inform citizens of their legal rights and obligations and to prudence in managing the assets. provide information regarding the legal profession and how it may best serve the community. Changes may have occurred • Negligently or intentionally did in the law since the time of publication. Before relying on something or failed to do something. this information, consult an attorney about your individual In certain situations, you may be personally case. For further information visit www.courts.state.co.us or liable even though your improper actions coloradolegalservices.org. Sponsored by the Colorado Bar Association administration of the trust, unless the SO NOW YOU ARE A TRUSTEE your duties and responsibilities. In addition, you trust agreement requires it. If you are reading this brochure, you are likely should understand the duration of your authority, either considering accepting appointment as and what you can and cannot do as the trustee. • Notice and Information to a trustee or have recently been appointed Your trusteeship may last indefinitely, terminate Beneficiaries. You must send the under a trust agreement. A trustee invokes upon the happening of some specified event, Trust Registration Statement to all great responsibility and importance. In addition or because the trust’s assets are completely beneficiaries to advise the beneficiaries to carrying out the instructions in the trust of their interest in the trust and to depleted. inform them of the County and Court agreement, trustees are usually responsible for managing, preserving, and administering Your Duties as a Trustee— that has jurisdiction over any disputes someone else’s assets for the benefit of the Ethical and Administrative related to the trust. In addition, named beneficiaries. unless the trust agreement provides Ethical Duties otherwise, you must provide the trust Trust agreements generally provide the trustee Generally speaking, a trustee has three kinds of agreement and asset information to with guidelines related to the scope and duration ethical duties to the trust and its beneficiaries: the beneficiaries upon reasonable of their authority, how assets are to be managed • A duty of impartiality, not to favor the request. and distributed, and when and how to work interest of one party over another. • Accounting.You must set up and with the beneficiaries. While direction may • A duty of undivided loyalty, not to put your be provided to the trustee, trust agreements keep complete financial records. A own interest in conflict with those of the trust agreement generally provides can often be complicated and may even have trust. ambiguous or conflicting terms, and therefore provisions stating when accountings many trustees (even professional trustees) consult • A duty to administer the trust with care to the beneficiaries are due, but if with an attorney to ensure that they carry out and prudence. You must always act to not, you must provide accountings their duties and responsibilities correctly in order further the interests of the trust and the at least annually. The accountings to protect themselves and effectuate the intent of beneficiaries. should reflect in detail all income, the trustmaker. • You should not enter into transactions in disbursements, and liabilities, and which you will benefit at the expense of the should show the opening and closing Under Colorado law, a trustee is deemed to trust and beneficiaries. balances for all accounts during be a fiduciary, and as such, held to a very high the accounting period. You should standard of care. A trustee is accountable to the • You must keep the trust’s assets separate maintain all supporting documentation beneficiaries and in some cases a Court, and is from your own assets, and the trust’s in the event the Court or beneficiaries expected to act prudently and in the best interests assets must be readily indefinable. request to review the financial activity. of the beneficiaries at all times. Administrative Duties • Taxes. Most trusts will have a This brochure is intended to give general • Register trust agreement. You must distinctive Tax Identification Number information to trustees and is not intended to register the trust agreement with the (“TIN”) and you will be required to file be legal advice specific to your situation. Given Probate Court in the county where the annual state and federal income tax the very serious risks of personal liability, if trust is being administered within 30 days returns. you are uncertain about any of your duties and after acceptance of the trust by filing a • Trust Asset Management and responsibilities, rights or powers as a trustee, Trust Registration Statement. If you do not Growth.You must keep the trust’s you are strongly encouraged to consult with an the Court may impose penalties for failure assets invested, and you will be held attorney. to register. Trust Registration Statements to a higher standard of care than if must be amended or updated whenever you were investing your own funds. What is Your Authority there is a change of trustee or the place Colorado law requires trustees to Your authority is granted by the trustmaker in the of administration. While registration of follow the “prudent investor rule,” trust agreement. It is important that, even before the trust is required, a Court generally meaning that you must invest as a accepting the trusteeship, that you thoroughly does not have ongoing involvement in the prudent person would in a similar review the trust agreement and understand situation. In effect, the “prudent .
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