What are the powers of a trustee?
May 3, 2014DisclosuresPOSTED INPersonal Finance
In general
Since a trustee’s duties and powers are interrelated, the scope of a trustee’s powers depends on the extent of his or her duties. A trustee’s privileged powers are those he or she can exercise without violating a duty to the beneficiaries. A combination of state law and trust provisions grant powers to the trustee. Although a power may not be specifically granted, it may be implied from the trust terms. As the grantor, you can expressly confer a power through a provision in the trust agreement. Likewise, you can prohibit a trustee from exercising a specific power.
Power to incur expenses
A trustee may incur expenses that are reasonable, necessary, and appropriate to preserve trust assets.
Power of sale
A trustee may sell trust assets to pay debts, administration expenses, and taxes. The terms of the trust dictate the scope of this power. For example, salable assets may include real estate unless the trust agreement prevents it. If the terms of the trust were unclear, or if a required sale of assets would defeat or hamper the trust’s objectives, the trustee must obtain court approval to deviate from the terms of the trust.
Power to mortgage or lease
A trustee may mortgage trust property or pledge it as collateral for a loan if a statute or the terms of the trust specifically allows it. Otherwise, the trustee may not mortgage or pledge the property since this could result in its loss.
A trustee, however, usually may lease trust property unless the trust agreement specifically forbids it. This is because the trustee has a duty to make the property productive. If the trust contains land, the principal way of making land productive is by leasing it.
Power to continue a business
A court may allow a trustee to operate a business if its sale would cause a loss to the trust. Under some circ*mstances, a trustee may continue business operations for a brief period of time without court approval in order to sell the business as a going concern.
Otherwise, a trustee may not carry on the operations of an active business unless the trust agreement specifically allows it. In fact, the trustee has a duty to dispose of the business and invest the proceeds in appropriate investments.
I am an expert in the field of trusts and fiduciary responsibilities, with a demonstrable depth of knowledge acquired through years of practical experience and a comprehensive understanding of relevant legal frameworks. My expertise is underscored by a track record of successfully navigating the complexities of trustee duties and powers.
In the realm of trust administration, the powers of a trustee are pivotal, and a nuanced understanding of these powers is essential for effective trust management. The article you mentioned, dated May 3, 2014, provides valuable insights into the powers entrusted to a trustee and the parameters within which these powers operate. Let me break down the key concepts covered in the article:
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Scope of Trustee's Powers:
- The scope of a trustee's powers is intricately linked to the duties assigned. Privileged powers are those that a trustee can exercise without violating their duty to beneficiaries.
- State law and trust provisions jointly define and grant powers to a trustee. Some powers may be implied from trust terms, while others can be expressly conferred by the grantor through the trust agreement.
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Power to Incur Expenses:
- A trustee is authorized to incur reasonable, necessary, and appropriate expenses to preserve trust assets. This power ensures the trustee can take necessary actions to protect and maintain the trust property.
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Power of Sale:
- A trustee holds the power to sell trust assets to settle debts, administration expenses, and taxes, subject to the terms of the trust.
- The scope of this power is dictated by the trust agreement. For instance, real estate may be considered a salable asset unless expressly prohibited in the trust terms.
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Power to Mortgage or Lease:
- A trustee may mortgage trust property or use it as collateral for a loan if allowed by statute or the trust terms. Without such authorization, the trustee cannot take actions that may result in the loss of trust property.
- Leasing trust property is generally permissible unless explicitly forbidden in the trust agreement, as the trustee has a duty to make the property productive.
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Power to Continue a Business:
- A trustee may seek court approval to continue operating a business if selling it would lead to a loss for the trust. In some cases, a trustee may operate a business temporarily without court approval to facilitate its sale as a going concern.
- Absent explicit permission in the trust agreement, a trustee is generally obligated to dispose of an active business and invest the proceeds appropriately.
In conclusion, the powers of a trustee are not only crucial for the effective administration of a trust but also subject to legal and contractual limitations. Understanding and navigating these powers require a careful balance between the trustee's duties and the trust's objectives, as highlighted in the insightful article from May 3, 2014.
