A trustee is an individual or entity entrusted with the responsibility of managing and administering your trust according to your wishes and in line with state laws. As a fiduciary, the trustee is held to a higher standard of care, with obligations to act in the best interests of the beneficiaries. This includes protecting the trust’s investments, maintaining accurate accounting records, and preparing necessary tax-related documents, which must be shared with beneficiaries upon request. In some instances, trustees may need to liquidate or sell trust assets to fulfill their duties.
Authority of a Trustee to Sell Trust Assets
In the course of managing a trust, a trustee might need to convert assets into cash to ensure the trust has sufficient liquidity. This may involve selling stocks, bonds, real estate, or other high-value assets. Although trustees typically do not require beneficiary approval to sell trust property, they may seek it to avoid potential disputes. However, trustees are prohibited from selling assets for their own benefit unless they are also a beneficiary of the trust.
Creating Liquidity in a Trust
A trustee might need to create liquidity for several reasons:
- Meeting financial obligations: The trust may have ongoing expenses, such as taxes, mortgage payments, or insurance premiums, which require ready funds.
- Covering administrative costs: Legal, accounting, and management fees may necessitate the creation of liquidity to pay these expenses promptly.
- Fulfilling beneficiary distributions: Whether for periodic or one-time distributions, liquidity is essential for meeting the trust’s distribution requirements.
- Responding to market conditions: Unexpected opportunities or challenges may arise, requiring quick access to funds.
Investment Strategy Management
A trustee is responsible for managing the trust’s investments in a way that aligns with its goals and adapts to changing financial circumstances. Adjustments to the investment strategy may be necessary due to:
- Economic conditions: The trustee must continually assess economic trends and asset performance, adjusting the strategy if it no longer meets the trust’s objectives.
- Risk management: Rebalancing the portfolio to align with the appropriate level of risk and potential return might involve diversifying investments or reallocating assets.
- Beneficiary needs: Changes in a beneficiary’s circumstances, such as education or healthcare costs, might require a shift in investment strategy.
- Balancing growth and income: The trustee may need to prioritize long-term growth, income generation, or a balanced approach based on the trust’s purpose.
Controlling the Sale of Trust Assets
If you are establishing a trust and have concerns about a trustee’s authority to sell assets, you can set specific guidelines in the trust document. While you may wish to preserve certain assets for sentimental or long-term reasons, placing too many restrictions can limit the trustee’s ability to manage the trust effectively. It’s crucial to balance preserving important assets with giving the trustee the flexibility to respond to changing circumstances.
Trustee’s Duties Regarding Beneficiary Distributions
The trustee is required to follow the instructions set out in the trust agreement, especially concerning the distribution of money or property to beneficiaries. Stipulating conditions for these distributions, such as specific timelines or milestones, can ensure your intentions are honored. However, the trustee must adhere to these instructions unless they are illegal or against public policy.
Importance of Communication
Effective communication between the trustee, beneficiaries, and any co-trustees is essential (and sometimes required), especially when selling trust assets or altering investment strategies. Transparency helps manage expectations and prevents misunderstandings. Additionally, accurate recordkeeping is crucial for demonstrating compliance with the trust terms and legal requirements.
If you are a trustee uncertain about your responsibilities or are creating a trust, consulting with an experienced attorney can help ensure that the trust is managed effectively and that your intentions are clearly documented. Contact us today to schedule an appointment.
