The Investment Scientist

Trustee Powers

Posted on: August 13, 2011

[Guest Post by Christopher Guest] Last month, I discussed the questions a settlor, or creator of a trust, needs to ask before selecting a trustee. Once a trustee is selected, a settlor needs to determine the trustee’s powers with respect to the trust.

The trustee is charged with caring for and managing the trust property. To do this, the trustee must have the ability to control the property, and, depending on the property, the trustee can be given a vast array of powers. A few of those powers could include the power to:

  • buy or sell property,
  • rent or lease property,
  • manage the related finances,
  • invest related securities,
  • encumber the property,
  • appoint a successor trustee, or
  • appoint agents.

These are just a few of the powers. The trustee’s powers could extend to encompass all the powers of a normal property owner. The settlor can also restrict the powers of the trustee, limit the type of property in that the trust the trustee has power over, or some combination thereof.

Most times, the trust document provides an explicit list of the precise trustee’s powers. Many states, via their code sections, also provide a list of powers with which a trustee is empowered. But, states also allow a settlor to opt out of most of the listed powers through the trust document. Further, I have even seen a settlor state that the trustee shall have all the powers according to the state code without expressly limiting the trustee’s powers.

Most trust powers are permissive or “discretionary.” The trustee is expected to use the trustee’s own judgment to determine whether an activity should be undertaken. Required acts are considered “imperative” and must be done, unless the trustee is given grounds for deviating from this obligation. Given the mandatory nature of imperative powers, if the trustee fails to perform an imperative power, the interested beneficiary can petition the court to force the trustee to act.

A trustee’s powers can also be expanded beyond what the trust document states. This occurs when the trustee needs a power to do something that is not covered in the trust document or by state law. Normally, the trustee will seek permission from the court to exercise these additional powers.

A trustee’s powers can also be restricted. This is normally enacted when a beneficiary files a complaint in court. This generally arises when the trustee does something the beneficiary doesn’t like or the beneficiary believes the trustee is required to do.

Next month, I will go into more detail concerning the trustee, including why it might not make sense to have co-trustees.

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Author

Michael Zhuang is principal of MZ Capital, a fee-only independent advisory firm based in Washington, DC. He is also a regular contributor to Morningstar Advisor and Physicians Practice. To explore a long-term wealth advisory relationship, schedule a discovery meeting (phone call) with him.



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