Duties of a Trustee of a Trust

The duties of a trustee are a matter of great legal significance. The trust’s trustee owes the trust and its beneficiaries a fiduciary duty, meaning that the trustee is expected to act solely in their best interest. In this post, I provide a brief overview of the legal duties of a trustee.

The Duties of a Trustee of a Trust

The duties of a trustee, as developed in modern American trust law, include:

1. The duty of loyalty
2. The duty of prudence
3. The duty of impartiality
4. The duty to collect and protect
5. The duty to earmark
6. The duty not to commingle
7. The duty to inform

These duties are codified in modern form across Article 8 of the Uniform Trust Code (UTC §§ 801–813) and the Restatement (Third) of Trusts (§§ 76–85). State trust codes generally follow this framework with local variations.

The Duty of Loyalty

A trustee must administer the trust for the sole benefit of the beneficiaries in accordance with the terms outlined by the settlor—or creator—of the trust. The trustee therefore cannot engage in self-dealing, meaning that he or she cannot take advantage of the position for personal gain.

The law takes this duty seriously. All self-dealing transactions are voidable by the beneficiaries, even if the transactions were reasonable or harmless. This is known as the No Further Inquiry Rule and exists to ensure that the trustee acts only in the interests of the beneficiaries.

Self-dealing may be permissible, however, under the following limited circumstances:

1. The settlor of the trust expressly authorized self-dealing in the trust documents.
2. The beneficiaries have consented to the self-dealing after full disclosure.
3. The transaction falls within a narrow statutory carve-out, such as the deposit of trust funds in a financial institution operated by the trustee under UTC § 802(h)(4)—which is not a blanket exception but a recognition that ordinary banking deposits do not count as prohibited self-dealing.

The Duty of Prudence

The duty of prudence requires the trustee to administer the trust as a prudent person would by considering the purposes, terms, distribution requirements, and other circumstances of the trust. To satisfy this standard, the trustee must exercise reasonable care, skill, and caution.

Historically, this duty was expressed through the Prudent Man Rule, which scrutinized each investment in isolation; an individually risky security could be improper even when sensible as part of a diversified portfolio. The Prudent Man Rule has been largely superseded by the Prudent Investor Rule embodied in the Uniform Prudent Investor Act (1994) and adopted by nearly every state. Under the Prudent Investor Rule, the trustee is held to a portfolio-level standard: an investment’s prudence is judged in the context of the entire trust portfolio, not in isolation. Diversification is generally required, and the trustee may delegate investment authority but must still monitor the delegate. The duties of a trustee do not allow for a “set it and forget it” approach to investing.

The Duty of Impartiality

The duty of impartiality requires the trustee to act even-handedly when administering a trust for multiple beneficiaries. This does not mean treating every beneficiary identically—a trust may grant some beneficiaries income while reserving the remainder for others, and a trustee must respect those differences. Rather, the duty calls for balancing competing interests in good faith, neither favoring nor neglecting any beneficiary as the trust instrument and the law require.

The Duty to Collect and Protect

The duty to collect and protect states that the trustee must gather applicable assets within a reasonable period of time. With respect to testamentary trusts, there is a duty to inspect the property and to ensure that the executor has upheld his or her duty to protect the property.

The Duty to Earmark

The duty to earmark provides that the trustee must designate trust property as such. The trustee must distinguish it from his or her own property.

The Duty Not to Commingle

The duty not to commingle provides that the trustee cannot commingle his or her own funds with that of the trust. There is, however, an exception for corporate trustees.

The Duty to Inform

The duty to inform states that the trustee must keep the beneficiaries informed as to what is happening with the trust and its assets.

Conclusion

This is just a brief overview of the differing duties of a trustee. If you find yourself serving as a trustee, I encourage you to reach out to a competent attorney to achieve a more comprehensive understanding of the legal duties that have been assigned to you.

Disclaimer: This post is for informational purposes only and is not legal advice. Trust law varies by state and the particular duties owed by a trustee depend on the terms of the trust instrument and the controlling state code. Consult a qualified Arkansas attorney about your specific situation.

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