harrytruman

Funny thing about Trustees, they are expected to seek help, just not too much help.  Generally, Trustees are not allowed to delegate their duties (see Probate Code section 16012).  The rules state that anything the Trustee can “reasonably” be required to personally perform cannot be delegated.  And the Trustee can never delegate the entire administration of the Trust to someone else.

Where a Trustee does delegate some matter to an agent or co-Trustee, the Trustee still has a duty to supervise that person in the performance of the delegated matter.  That means a Trustee cannot simply delegate and forget about it.  The Trustee is required to oversee the agent and make sure that the job is being done in the best interests of the Trust.

There is one big loophole this the nondelegation rule: investment and management decisions.  Under the Uniform Prudent Investor act, a Trustee has the power to delegate certain financial decisions (see Probate Code section 16052).  This exception allows a Trustee to delegate financial decisions “as prudent under the circumstances.”  But the Trustee retains the duty to (1) select a good agent to act for the Trust, (2) establish the scope and terms of the delegation, and (3) periodically review the agent’s performance.

Here’s where things get interesting.  Where a Trustee has properly delegated financial decisions to an agent, the Trustee CANNOT be held liable for those investment decisions.  That can be a shocking result for a beneficiary who seeks to hold a Trustee liable for bad investment decisions.  Of course, the agent to whom investment decisions were delegated can be held liable for bad investment decisions.  But that just means the beneficiary may find himself suing a large financial firm rather than the Trustee.

The good news is that financial advisors rarely will agree to accept delegated financial responsibility for a Trust–primarily because of the liability involved in doing so.  Yet, so often Trustees who make bad investment choices will try to pass the buck to the financial advisor.  It then becomes the beneficiaries job to determine whether the investment power was delegated or not.  It could mean the difference between suing a Trustee or suing a large financial institution.

If you happen to be a Trustee, choose your delegation wisely.  Even with the job being handed off to someone else, you may still be on the hook for a bad decision.

 

  • Frank DedBernardi

    The provisions of this section and the standard practice of the Estate Planning actors in this state are to provide a will, a trust, a power of attorney and a health care power of attorney for folks as their estate plan. They usually fail to mention this section or any of the concerns it raises and leave their clients unprepared if a major accident or illness incapacitates the trustee of the family estate.

    With the aging of the population in general and specifically the large number of baby boomers who now have family trusts the problems caused by this poorly handled legislation and the natural tendencies of the legal profession every time a senior falls and has serious consequences of the fall there will be a family who does not have the tools to handle the payment of bills, transfer of property and other major transactions.

    The entire purpose of Estate Planning is to provide the tools, yet the standard package is useless when it is needed most. You have to bring in the lawyers to mop up the mess that has been made by actions such as the certification of incapacity of the trustee, or a documented resignation of the trustee and the subsequent appointment of a successor trustee to continue to manage the affairs of the person. This probably brings up all of the family issues the original grantor of the trust was trying to avoid in the first place.

    Are there simple solutions? Yes, you can specifically authorize the trustee to appoint an agent to act for them within the trust itself and do so in full recognition of section 16012 of the Probate Code. This would be accordance with the original understanding the grantor probably had when the original estate plan was developed including the trust and the power of attorney.