AskDefine | Define trustees

User Contributed Dictionary

English

Pronunciation

Noun

trustees
  1. plural of trustee

Extensive Definition

Trustee is a legal term that refers to a holder of property on behalf of a beneficiary. A trust can be set up either to benefit particular persons, or for any charitable purposes (but not generally for non-charitable purposes): typical examples are a will trust for the testator's children and family, a pension trust (to confer benefits on employees and their families), and a charitable trust. In all cases, the trustee may be a person or company, whether or not they are a prospective beneficiary.

General duties of trustees

In virtually every common law jurisdiction, trustees have certain duties (some of which are fiduciary). These include the duty to carry out the express terms of the trust instrument, the duty to defend the trust, the duty to prudently invest trust assets, the duty of impartiality among the beneficiaries, the duty to account for their actions and to keep the beneficiaries informed about the trust, the duty of loyalty, the duty not to delegate, the duty not to profit, the duty not to be in a conflict of interest position and the duty to administer the trust in the best interest of the beneficiaries. These duties may be expanded or narrowed by the terms of the instrument creating the trust, but in most instances cannot be eliminated completely.
Benjamin Cardozo once described the standard for fiduciary behavior this way: "Not honesty alone, but the punctilio of an honor the most sensitive, is then the standard of behavior." Meinhard v. Salmon, 249 N.Y. 458, 164 N.E. 545 (1928).

Necessary traits of trustees

The responsibilities of a trustee can be onerous, although honest trustees are normally indemnified out of the trust assets. A trustee carries the fiduciary responsibility and liability to use the trust assets according to the provisions of the trust instrument (and often regardless of their own or the beneficiaries' wishes). The trustee may find himself liable to claimants, prospective beneficiaries, or third parties. In the event that a trustee incurs a liability (for example, in litigation, or for taxes, or under the terms of a lease) in excess of the trust property they hold, they may find themselves personally liable for the excess. Thus, at least in theory, a member of a small charity committee could unwittingly risk their family assets.
Trustees are generally held to a "prudent person" standard in regard to meeting their fiduciary responsibilities, though investment, legal, and other professionals can be held to a higher standard commensurate with their higher expertise. Trustees can be paid for their time and trouble in performing their duties only if the trust specifically provides for payment. It is common for lawyers to draft will trusts so as to permit such payment, and to take office accordingly: this may be an unnecessary expense for small estates.
In the case of charitable or other trust corporations, the company itself is a trustee and the term "Trustee Board" is frequently used of the board of directors. The company holds the trust property and liabilities separately from the individual trustee-directors, and confers limited liability on them. The members of the board are generally known as trustees, although they remain liable as directors under company law, and as directors are naturally responsible for their acts and omissions in directing the charity. For practical purposes, the members of the board perform the duties of trustees, but the powers of the charity are delegated and exercised subject to the charity's procedural articles or regulations.

Other uses

Many other corporations call their governing boards a board of trustees, though in those cases, they act as a board of directors. To some extent, the fiduciary duties of a director to the company are comparable with those of a trustee.
In the case of UK charities, a trustee is an unpaid volunteer who undertakes fiduciary responsibilities on behalf of the charity, subject to the provisions of Charity Law, a branch of trust law, and the Charities Act 1993. For charity trustees, the Charity Commission of England and Wales, Office of the Scottish Charity Regulator of Scotland and Voluntary Activity Unit of Northern Ireland often has concurrent jurisdiction with the Courts. Many UK charities are also limited liability companies registered with Companies House, in this case the trustees are also Directors of the company and their liability is limited. This is the preferred model if the charity owns property or employs people.
Trustee is also a term used for a prison inmate who has special work-related privileges, usually as a result of good behavior.

Bankruptcy Trustee

In the United States, if a person is adjudged a bankrupt, a trustee will be appointed to hold legal title to the property of the debtor and to perform other duties required by the bankruptcy laws. See United States Trustee for additional information about trustees in US bankruptcy law.

References

  • Fontaine, C. JD, LLM, CLU, ChFC (2004) Fundamentals of Estate Planning. The American College Press
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