Ask the Probate Judge—Trustee Obligations
Rudd, appeared December 21, 2006, Albuquerque Journal, Business Outlook
Reprinted with permission
Editor's note: This column may not be quoted or reproduced in whole or part without express written permission of the author.
Q: My experience observing two different living trusts that affect other members of my immediate family leads me to the conclusion that trusts can be a license to steal. When one person takes over as sole trustee upon the death of the person who initiated the trust (trustor), there seems to be no way that anyone else can know what is in the document relative to the trustor's wishes. The sole trustee is therefore free to dispose of the estate and pocket the proceeds without consideration of anyone else, even those named as beneficiaries in the trust. Is there any way of forcing the trustee to provide a copy of the trust document? Or should the trustor name all beneficiaries as alternate trustees so that they will be entitled to a copy of the document, and therefore fair treatment? J.C.
Your question illustrates the importance of choosing a trustworthy trustee to manage a trust after the trustor's incapacity or death. Under New Mexico law, beneficiaries of a New Mexico trust have an absolute right to see the trust instrument. All they have to do is ask.
Upon request, trustees "shall promptly furnish to the beneficiary a copy of the trust instrument." At least annually a trustee shall send to distributees of trust income or principal and to other beneficiaries who request it, a report of the trust property, liabilities, receipts and disbursements, the amount of the trustee's compensation, a list of trust assets, and, if feasible, their respective market values.
Trustees are fiduciaries, bound by various legal and fiduciary duties imposed by law. Some of these duties include:
- administering the trust in good faith;
- following the terms set out in the trust document;
- complying with New Mexico's Uniform Trust Code requirements; and,
- safeguarding the interests of the beneficiaries.
The law states, "A trustee shall administer the trust solely in the interests of the beneficiaries."
Additional duties of trustees include:
- acting loyally and without conflicts of interest;
- acting impartially in investing, managing and distributing trust property;
- prudently administering the trust with reasonable care, skill and caution;
- incurring only reasonable costs when managing trust property;
- keeping adequate records of the administration of the trust;
- keeping trust property separate from the trustee's own property; and,
- keeping qualified beneficiaries of the trust "reasonably informed about the administration of the trust."
Violations of any of these duties are considered breaches of trust. Damages for breaches of trust may be awarded by the district court.
Any interested person who believes the trustee is not performing his or her duties can file an action in the district court. In your example, trust beneficiaries could hire a reputable attorney to file an action to force the trustee to perform his or her fiduciary duties. The beneficiaries would need to present to the court evidence of wrongdoing if removal of a trustee were sought. Failure to act within a reasonable time or failure to properly distribute trust assets would probably be considered a breach of fiduciary duty for which a court could remove and surcharge a trustee.
In a judicial proceeding involving the administration of a trust, the court could also award costs and expenses, including reasonable attorney fees, to any party, to be paid by another party or from the trust.
Naming all beneficiaries as co-trustees would be a logistical and management nightmare. Appointing one honest trustee or a bonded, licensed corporate fiduciary might avoid some of the problems you have raised.
© 2006, Merri Rudd & Albuquerque Journal, All Rights Reserved