One common legal instrument that people use to plan their estates is a trust. A trust is a legal entity involving at least three roles: a settlor, a trustee, and a beneficiary. The idea of the trust is that each of these three roles work together. The settlor creates the rules of the trust and provides it with property, and they designate the beneficiary. The beneficiary, like the name suggests, is the person for whom the trust is managed. They derive the benefit of any income or other gains from the trust.
However, between the settlor and the beneficiary lies the trustee. The trustee manages the assets of the trust and uses them in the best interests of the beneficiary as directed by the rules of the trust that the settlor created. This means that the trustee has a variety of duties that they need to fulfill. These trustee duties can be thought of as either substantive or procedural duties. This is not an official classification, and the lines can blur, but it is at least a helpful way to catalog the duties.
Substantive duties are those that require the trustee to behave in a certain way. The central example is the duty to administer the trust by the rules the settlor laid out. The trust document will contain a variety of provisions, and it is the trustee's duty to follow them. Another example of these substantive duties is the duty of skill and care. This means that the trustee must manage the trust's assets with reasonable skill and caution. Similarly, Illinois law also imposes a “prudent investor” duty on trustees.
This means that the trustee has the duty to act as a prudent investor of the trust's assets including things like developing a diversified portfolio and actively managing investments as necessary. Trustees working with multiple beneficiaries also have a further duty: that of loyalty and impartiality. The trustee may not favor one beneficiary over the other unless the trust instrument provides some reason for it.
Procedural and Ministerial Duties
Trustees also owe beneficiaries a variety of more procedural duties, which involve the proper formalities of managing the trust. For instance, the law governing trusts in Illinois requires trustees to give annual accountings of the trust's receipts, disbursements, and an inventory of the estate. Trustees also often have duties to provide notice of certain actions such as changes in the trusteeship. This may also include a requirement that the trustee provide the beneficiaries with a copy of the trust instrument for their records.
These are just some of the many duties that trustees owe the beneficiaries of their trust. If you would like more information on the legal ramifications of managing a trust, contact an experienced Illinois estate planning attorney today. Our firm advises clients in many northwest suburban towns like Long Grove, Kenilworth, and South Barrington.
About the Author: Attorney Jay Andrew is a founding partner of Drost, Gilbert, Andrew & Apicella, LLC. He is a graduate of the University of Dayton School of Law and has been practicing in estate planning, probate, trust administration, real estate law, residential/commercial leasing, contracts, and civil litigation. Since 2005, Jay has been a Chair of the Mock Trial Committee for the Annual Northwest Suburban Bar Association High School Mock Trial Invitation which serves over 240 local Illinois students each year.