The trustee of a trust has many responsibilities associated with their role— but in simplest terms, a trustee is intended to serve over trust by managing the trust assets for the benefit of the beneficiaries. Understandably, in order for the appointed trustee of any trust to be able to effectively perform their role, there are a number of legal actions and responsibilities that the trustee should be legally empowered to perform.
As an example, let's assume someone created a trust for their family and appointed their sister Mary as the successor trustee. Inside of the trust are various stocks, bonds & financial investments, a valuable collection of 1800's coins, and the families primary residence. If the family were to move to a different house, can it be assumed that the trustee has legal authority to sell the house? What if the house were turned into a rental property... would the trustee have authority to decide upon a suitable renter, negotiate lease amounts or to receive & manage rental income?
Because trusts are often created as a long-term ownership vehicle, there are understandably many circumstances that the trustee of a trust may encounter during the course of their role.
Do trustees automatically receive powers over a trust?
Being appointed as a trustee doesn't necessarily automatically qualify you with legal power to act in any circumstance.
Instead, a trustee can usually only exercise powers that are named and given within the trust document itself. And for this reason, it's fairly common for estate planning attorneys to draft trust agreements to include provisions granting a trustee more powers than they might currently need.
This not only provides legal clarity around whether a trustee is empowered to act in certain circumstances, but also helps keep the trust flexible in nature based on changes in circumstances, changes with regard to the trust's assets or even changes or additions to the named trust beneficiaries themselves.
Other times a grantor or estate planning attorney may grant a trustee a power of discretion to act, in which case a trustee has the ability to self-determine the ability to exercise certain powers. It's worth noting that in these situations, a court or judge has an ability to evaluate a trustee's discretion in order to help oversee or prevent any abuse of power by the trustee.
Keep in mind that a trust agreement might also expressly forbid a trustee or successor trustee from taking certain actions or acting with certain legal powers.
Below is an overview of the most common powers that a trust agreement might grant its trustees & successor trustees.
Power of trustee to incur expenses
This power allows a trustee to incur expenses that are necessary or appropriate for fulfilling the purpose of the trust. While a power to incur expenses is generally permitted to a trustee, there may be certain instances when a trustee is also expressly forbidden by the terms of the trust to incur certain expenses— whether named or intended generally.
Expenses typically included in the grant of power for a trustee to incur expenses might include expenses like taxes, liability insurance, and fees for services the trustee is not qualified to perform such as accounting, tax preparation, or investment-related trading fees.
Power of a trustee to lease trust property
One of the common implied powers of a trustee is the power to properly lease trust assets. Because real estate is a common trust asset, it generally makes sense for a trustee to be empowered to lease any trust property, within reasonable time periods and arrangements.
Generally speaking, however, this implied power of a trustee typically does not extent an ability for a trustee to create a lease which would extend beyond the probable duration of the trust.
As an example, let's assume Barry is the trustee of a trust for the benefit of his niece, Joann, and nephew, Grayson. Although both Joann (15) and Grayson (13) are minors, the trust document provisions for the trust to terminate upon both of them reaching 21 years. Because this event happens within 6-7 years, it would therefore not be implied for Barry to lock up any trust assets under a 15 year lease, as it would negatively impact the intention of the trust assets to be materially transferred to Joann and Grayson outright before that time period ends.
In a situation like this when the trustee does create a lease that extends beyond the probable duration of the trust, it is very likely that the lease would be considered valid during the remaining duration of the trust itself, but the lease could be deemed void upon the termination of the trust.
Power of a trustee to sell trust property
A trustee usually does not have an implied power over a trust to sell trust property unless there's an exception arising out of the nature or character of the property and an expressed duty to make or maintain the productivity of that particular property.
Instead a trustee can generally be allowed to sell trust property if:
- the power to sell trust property is expressly provided within the trust, or
- such sale is necessary or appropriate in order for the trustee to carry out the purposes of the trust
Anytime a trust expressly states or forbids a trustee to sell trust property, that intention supersedes any implied or stated powers for the trustee to sell property.
After all, the last thing the grantor of a trust would want is for a trustee to sell or dispose of trust assets they had intended to pass down to heirs or beneficiaries.
Power of a trustee to mortgage, pledge or borrow trust property
Except when legally authorized or directed by a court, or expressly stated by within the terms of a trust, the trustee of a trust cannot ordinarily mortgage, pledge or borrow the trust property.
Thankfully, there is no implied power of a trustee to mortgage trust property.
Power to compromise, arbitrate or abandon claims
The power for the trustee of a trust to compromise, arbitrate or abandon claims is often considered an implied power.
Because litigation, claims and legal arguments can often get expensive, what this power effectively allows is an ability for a trustee to have discretion around when is an appropriate time to quit pursuing or engaging with claims by or against the trust estate.
Power to vote shares of stock
Many trusts contain financial investments in the form of corporate stock or equity. By nature, stocks essentially represent a portion of ownership in a company, which means stock owners also have a right to vote on shareholder decisions based on their percentage ownership in the company.
In situations when a trust owns stock assets, the trustee is often implied the ability, or power, to vote shares of stock on behalf of the trust. Keep in mind that due to the duties of the trustee to act impartially, any stock votes made in trustee capacity must be made in fiduciary form, meaning votes must be made in the best interest of the trust, trust assets and beneficiaries.
Powers granted for Surviving Trustees
For planning purposes, many grantors will elect to grant surviving powers to any trustees, such that if two or more persons are ever named as co-trustees and one of them fails to act, resigns, is removed, or dies during the course of their role, the original powers conferred upon the trustees (collectively) can be properly exercised by the remaining trustee(s) as originally intended.
Example: Upon his passing, Timothy's last will & testament established the Smith Family Trust for the benefit of his wife and children, effectively naming his siblings Joel & Tia as the co-trustees. At the time of creating the trust, Joel was serving in the military overseas and was often difficult to get in touch or communicate with. Because Timothy's trust expressly granted powers for surviving trustees, Tia was able to successfully fulfill her role as trustee by legally acting with the full authority originally granted to her and Joel as co-trustees.
Powers granted to successor Trustees
Similar to the above power often granted for surviving trustees, many trust agreements will provision for a similar transfer of powers to any successor trustees upon the death of any initially named trustees.
In these situations, when an individual trustee dies, their trustee powers are automatically conferred to any successor, unless it is proven that the first-named trustee was given any particular powers individually with an intent by the trust grantor that these powers not succeed or pass to successor trustees.
If you have created a trust, are thinking of creating a trust, or perhaps are a trustee or co-trustee let this be a helpful guide for the types of trust powers that you should consider having documenting within the trust agreement.
If you have questions, drop us question or thought in the comments below. Like always, we advise reaching out to a qualified estate planning professional with any individualized concerns needing immediate assistance or interpretation from a qualified and licensed trust & estates attorney.