Considerations with Appointing Co-Trustees
Nearly every person that is designing their estate plan will wrestle with questions of who should be appointed the successor trustee or personal representative (the person who will be in charge of distribution after the plan-maker(s) are dead) and how many people should serve in that position. In a previous blog post “Estate Planning Agents Questions and Answers” I discussed briefly the pros and cons of why someone would choose just one to serve at a time or have multiple serve at the same time. You can read that here. In this post, I want to focus on the specific duties co-trustees have to each other as well as to the trust and beneficiaries.
What If They Can’t Agree?
I have reviewed many trusts that provided for multiple trustees serving together “co-trustees”. They will have language that states something like, “if at any time both grantors [trust-makers] are incapacitated or have died the successor co-trustees shall be “John Doe and Jane Doe”….”. Most of the time there are only two co-trustees but occasionally there are three or more. Most of the time this isn’t a problem and the co-trustees get along and there aren’t any disagreements about how the trust should be managed or distributed. The question remains, what if they can’t agree? First of all, the statute assumes that cotrustees have to act in concert. The trust can state that they have the authority to act independently, but if it doesn’t state, then the default standard is that they have to make all decisions together. This question can and sometimes is addressed in the trust and the trust can offer solutions such as:
- A dominant co-trustee that has the final say regardless of disagreement
- Decision by majority vote among the co-trustees (doesn’t work if there are only two trustees)
- resorting a majority vote of the beneficiaries of the trust when there is a deadlock
If the trust gives a method to break a deadlock, then the trust language will govern. Most trusts fail to address this issue. If the trust fails to address a disagreement between or among the co-trustees we revert to the Utah Trust Code. The section that applies is 75-7-703(1) states only that if they can’t agree then they may act by a majority decision. In the event that they can’t get a majority vote, they can petition the Court to intervene if the decision will have a significant impact on the trust property. Or they can just not act with regards to that decision and maintain the status quo.
Are they liable for acts of another co-trustee?
There are several statutes at play and it depends on the circumstances. For example, if a dissenting trustee gets overruled by the majority is he or she just as liable as the majority if the majority vote decision results in a breach of liability? Here are some of the rules with regard to liability for actions of other co-trustees:
- If a cotrustee is unavailable to perform duties because of absence, illness, disqualification under the law, or other temporary incapacity [a good reason], then cotrustee(s) may act for the trust without the unavailable cotrustee if the trust property is in danger or to achieve the purposes of the trust. 75-7-703(4).
- A trustee who does not join in an action of another trustee is not liable for the action; however, each trustee shall exercise “reasonable care” to:
- prevent a co-trustee from committing a serious breach of trust; and
- compel a cotrustee to redress a serious breach of trust
So even though a cotrustee is not part of a wrongful majority decision he or she still has to exercise reasonable care to stop a co-trustee from committing a serious breach of trust and if they can’t stop them, they have the same duty to make them pay the trust back or redress the breach.
For example if three of the four trustees decided by majority vote to use trust money in order to enrich themselves personally even though this was against the terms of the trust then the dissenting trustee would not be liable to repay the trust, but would have an affirmative duty to inform the beneficiaries as well as sue the majority co-trustees for breach of fiduciary duty follow up with the collecting of said misappropriated funds.
What if a co-trustee is a slacker? And fails to help or act?
One of the first principles of this great country we live in, is that you can’t force anyone to work for you. If a grantor makes a person a trustee and they are unwilling to serve in that capacity, then they have every right to say, “no” and the position will pass to the next choice made by the grantors. However, once they accept the position as a trustee, they become empowered to act in the name of the trust as well as take on fiduciary responsibility.
It is commonplace that people accept the position and sit on job. They neither resign nor manage the trust property with diligence. They just never get around to it despite their good intentions. In a situation like this, that cotrustee will be liable for mismanagement of the trust assets. Section 75-7-703 states, “A cotrustee must participate in the performance of a trustee’s function…[unless they have a good reason as discussed above] or they have properly delegated the performance of the function to another trustee.”
For example if there are co-trustees who are trying to sell some real estate in order to fund a trust for beneficiaries to help pay for college and the sales requires the signatures of both co-trustees. If a co-trustee sat on the paperwork, the buyer walked and the trust remained unfunded with cash to help pay the tuition for the beneficiaries, the beneficiaries could have a claim against the lazy co-trustee could be personally liable for all interest from a student loan that they had to get because the trust money was not available.
This is not to say that once you accept, you have to carry the job until the end of the trust. A trustee can always resign, but he or she will have to render an accounting of the trust to any successor trustee and safeguard the assets until a new successor trustee has been appointed.
Summary
In summary, each co-trustee is responsible to take care of the trust property. Although they may not be liable for the acts of other trustees, if he or she dissented, he or she is still responsible to take actions to safeguard and recover property as a result of said actions. Even though service as a co-trustee is not compulsory and may be excused temporarily for a good reason, as long as the co-trustee holds the position he or she carries the powers and obligations.
