Volume 1, Issue 2

As a successor trustee, you play a pivotal role in managing the trust according to its terms and in the best interest of the beneficiaries. This newsletter aims to equip you with knowledge about your core responsibilities so that when you are called upon to step into your role, you are more prepared to meet the challenge.

What is the Duty of Loyalty?

The Duty of Loyalty is a fundamental principle that requires you to act in the best interest of the beneficiaries without any conflict of interest. Here’s some quick hits on what this means:

1. Prioritize Beneficiary Interests: Your primary obligation is to put the beneficiaries' interests ahead of your own. Washington law states that a “trustee must administer the trust solely in the interest of the beneficiaries.” This is a wholistic viewpoint, not lifting one beneficiary’s needs or desires above another, unless the trust specifically authorizes it.

2. Avoid Conflicts of Interest: As a successor trustee, you must disclose any potential conflicts and avoid situations that could compromise your impartiality or judgment. This ensures that your ultimate decisions are for the beneficiaries as a whole and that your gain, if you are a beneficiary, are not lifted above any other beneficiary

Why is the Duty of Loyalty Important?

- Trust and Confidence: Upholding this duty helps build trust between you and the beneficiaries.

- Legal Compliance: Fulfilling the Duty of Loyalty protects you from legal complications that may arise from mismanagement. Disgruntled beneficiaries will first look at a trustee’s spending to see if it was necessary and proper, then trustee fees, and finally review what advantages the trustee gained by their position. When a trustee fulfills their Duty of Loyalty, then these arguments are quieted and the trustee shields themselves from potential arguments and hurt feelings of other beneficiaries.

Practical Steps to Uphold the Duty of Loyalty

1. Create Clear Communication Channels: Establish open lines of communication with beneficiaries. Regular updates on trust activities and financial status help ensure transparency and foster trust.

2. Document Decisions and Actions: Maintain meticulous records of all decisions made, along with the rationale behind them. This documentation serves as a valuable reference and can protect you in the event of inquiries about your actions.

3. Seek Professional Guidance When Needed: Getting legal assistance will keep you, as trustee, within the bounds of the trust and the law. There are many potential landmines so seeking and following good, sound legal advice will keep you safe.

4. Review Trust Terms Regularly: Familiarize yourself with the specific terms and stipulations of the trust. Understanding the intentions of the grantor is crucial for making decisions aligned with the beneficiaries' best interests. The trust will also give you clear instructions when a beneficiary is to receive distributions, the amount, and any specific restrictions. Following the Trustmaker’s instructions, even when hard, keeps a trustee well protected.

5. Conduct Regular Assessments: Assessing your recordkeeping, the trust investments, and any distribution authorization is important throughout the process. Washington law frowns upon a trustee investing funds in their own business, or making a profit from the investments of the trust. Attempting a loan from the trust is voidable, and a court would potentially impose sanctions against a trustee for trying to benefit from their position.

All of these items make up a Duty of Loyalty. It is often a difficult balance when the trustee is also a beneficiary to make sure that everyone’s interest is being assessed. Decisions can bite a deceptive trustee, but good decisions protect the trustee. Utilizing a trust is truly the best of both worlds, making sure a trustee complies with the law and the terms of the trust to keep a trustee well within its Duty of Loyalty is just one of the many things Planning With Purpose assists with.

Looking Ahead

In the upcoming newsletters, we will explore the Duty of Care and Duty of Impartiality—essential duties that complement your role as a successor trustee. Understanding these responsibilities will empower you to navigate the complexities of trusts more effectively.

If you have any questions or need personalized guidance regarding your responsibilities, please feel free to reach out to our office at 425-939-9948.

Disclaimer: This newsletter is for general educational purposes only and does not constitute legal advice. For personal guidance, please consult an estate planning attorney.