Trustee Delegation of Duties

In California, generally, a trustee, “… has a duty not to delegate to others the performance of acts that the trustee can reasonably be required personally to perform … [Probate Code section 16012.” Important exceptions exist for delegating investment and management functions, which come with their own requirements [Probate Code section 16052]. Let us discuss permissible and impermissible delegation.

Trustees are expected, as needed, to hire advisors who possess the relevant qualifications and expertise to guide and advise the trustee. Some areas where a trustee would seek expert advice include legal advice, appraisals, loan services, property sales, investment advice, and property management advice. For example, a trustee would hire a licensed real estate agent to sell real property at the best available price.

Acting without competent advice may result in trustee negligence, which may in turn result in beneficiary complaints and controversy. Nonetheless, even after receiving advice, a trustee is expected to use his or her own judgment and good faith when exercising discretionary powers and making decisions affecting important aspects of the trust administration.

That is, a trustee must consider the purposes of the trust, relevant trust provisions, relevant law, and relevant facts and circumstances when reaching a decision. A trustee is expected to use discretion to the extent allowed under the terms of the trust. Some duties call upon the trustee’s exercise of discretion. For example, the trustee may be authorized to make discretionary distributions to or for the benefit of a beneficiary.

Discretion, however, must be exercised reasonably and in good faith and not arbitrarily. A trustee cannot abandon decision making responsibility.

Such considerations should be documented in the trustee’s log (diary) and/or in a trustee’s resolution or memorandum. Doing so protects the trustee from subsequent criticism that he or she did not act responsibly at the time.

Tasks that are routinely delegated are ministerial and administrative tasks which do not require judgment, and as previously said, investment and management tasks that require specialized expertise. Ministerial and administrative tasks are tasks that require no judgment or discretion. For example, cleaning and maintaining a trust owned property is ministerial. Preparing tax returns and tax notices is often administrative.

Importantly, the trustee must still exercise prudence in selecting and in supervising any agents or co-trustees to carry out any delegated tasks. The foregoing is particularly true for delegated investment and asset management responsibilities. A trustee oversees that the investment advisor or asset manager is performing his or her duties properly within the scope of the agreement.

A trustee’s general duty not to delegate, however, can be altered by the settlor in his or her trust instrument. The California Uniform Directed Trust Act (California Probate Code §§ 16600–16632) allows the settlor (creator) of a trust to appoint and empower persons, usually advisors, to act as so-called, “trust directors” who are given both the authority and responsibility for certain aspects of the trust administration. Trust directors are typically appointed with authority over investments, asset management, and discretionary distributions to beneficiaries.

A trust director’s power of direction removes responsibility for such decision-making authority from the trustee. The directed trustee must follow the direction given by the trust director within their scope of authority. Taken to its extreme, it is now possible to place all discretionary decision-making authority in the hands of one or more trust directors (typically trusted advisors). In such a scenario, the trustee approaches becoming an administrative functionary, but never entirely. The Trustee still must not comply with a trust director’s direction if doing so results in willful misconduct by the trustee.

A trustee has important duties which must be accomplished in accordance with the duty’s standard of care. For this reason, a trustee will often need to hire advisors and delegate certain tasks, as appropriate. Trusts can now allocate trustee powers between on or more directed trustees and one or more trust directors.

The foregoing brief discussion of delegation of trustee duties is not legal advice. Anyone confronting such issues should seek a competent trusts and estates attorney.

Dennis A. Fordham, attorney, is a State Bar-Certified Specialist in estate planning, probate and trust law. His office is at 870 S. Main St., Lakeport, Calif. He can be reached at Dennis@DennisFordhamLaw.com and 707-263-3235.