Vol. 24, No. 5. Counseling Individual Trustee Clients.

• Author: by Robert S. Tippett

Utah Bar Journal

Volume 24.

Vol. 24, No. 5.

Counseling Individual Trustee Clients

Utah Bar JournalVolume 24 No. 5Sep/Oct 2011Counseling Individual Trustee Clientsby Robert S. TippettIt is common for the settlor or the beneficiaries of a trust to ask a family member, a family friend, or a close family advisor, such as an accountant, to serve as trustee. The individual may have substantial experience serving as a fiduciary, or may have no such experience at all.

When counseling an individual fiduciary, the attorney should ensure that the client has a solid understanding of the powers and responsibilities associated with the job. In some cases, this may mean explaining to the client what a trust is and how it works. If the client has experience serving as a trustee, the attorney's role may be one of impressing on the client the gravity of the client's responsibilities. This article describes the basic points that an attorney should bring to the attention of an individual client who serves, or is considering serving, as a trustee.

A person may be asked to serve as trustee of either a revocable trust or an irrevocable trust. Usually, the settlor of a revocable trust serves as his or her own trustee. In most cases, therefore, a fiduciary client will be serving as trustee of an irrevocable trust. Except where otherwise indicated, the discussion in this article refers both to situations in which a person is serving as trustee of an irrevocable trust and where an individual is serving as trustee of another person's revocable trust.

Read the Trust Instrument

When counseling an individual trustee client, the attorney should read the trust instrument carefully and urge the client to do the same. The trust instrument sets forth the powers that the trustee has, the beneficiaries' rights to distributions, and the trustee's administrative responsibilities. Utah Code Section 75-7-801 requires that a trustee administer the trust in accordance with the terms of the trust instrument. See Utah Code Ann. § 75-7-801 (Supp. 2010). With very few exceptions that are set forth in Section 75-7-105, the terms of the trust instrument govern over the default rules that are provided in the Probate Code.

Neither the attorney nor the client should assume that he or she already knows what the trustee's powers and responsibilities are. The terms of the trust instrument govern the administration of the trust, and different trust instruments have different terms. Trustees generally have all of the powers over trust property that an individual has over his or her own assets, but trust instruments sometimes place restrictions on these powers. For example, some trust instruments place restrictions on the ability of a trustee to borrow or to pledge trust property as collateral for a loan. The trustee must be aware of such restrictions.

Confidentiality

The terms of a trust are private, and the attorney should impress upon the client the fact that the trustee owes a duty of confidentially to the beneficiaries with respect to the terms of the trust.

Individual trustees often overlook their duty of confidentiality when opening accounts at banks or brokerage firms. The institution will invariably ask to see a copy of the trust instrument. Instead of giving the institution a copy of the trust instrument, the trustee should generally provide a trust certification. The trust certification will contain the information the institution needs...