Serving as a trustee in New York carries significant responsibility. A trustee plays a vital role in managing and protecting the assets held within a trust, ensuring that they are distributed according to the trust’s terms and the wishes of the grantor. From recordkeeping and tax filings to maintaining transparency with beneficiaries, the position requires diligence, honesty, and a clear understanding of both legal and fiduciary duties. Failing to fulfill these obligations can lead to personal liability and disputes among beneficiaries, making it essential for trustees to fully grasp their responsibilities from the start.
If you’ve been named a trustee or are considering establishing a trust, working with an experienced Central New York revocable trust lawyer can help you understand your duties and avoid costly mistakes. At Davies Law Firm, P.C., our team provides trusted guidance in all aspects of trust creation and administration. To learn how we can help you manage your trustee responsibilities or establish a solid estate plan, call (315) 472-6511 today to schedule a telephone conference.
The Core Fiduciary Duties of a New York Trustee
New York law imposes strict, non-negotiable fiduciary duties on trustees. These are legal standards that define how a trustee must act in every decision and transaction. They are not flexible “best practices,” but binding obligations. The three most critical are the duties of loyalty, prudence, and impartiality.
The Duty of Loyalty: Undivided Allegiance
The duty of loyalty is the foundation of all fiduciary law. Two common and serious breaches of loyalty are self-dealing and commingling:
- Self-Dealing: A trustee is absolutely prohibited from using their position for personal gain. This includes diverting trust opportunities, using trust property for personal benefit, or selling trust assets to themselves or family members, even at a “fair” price. In the landmark case Matter of Rothko, the court reaffirmed New York’s “no further inquiry rule.” Any transaction tainted by self-dealing is automatically voidable by beneficiaries, regardless of the trustee’s intent or the fairness of the outcome.
- Commingling: A trustee must never mix trust funds with personal assets. All trust assets must be held in a separate account titled in the name of the trust. This is not merely a bookkeeping standard; it is a strict legal requirement. The Surrogate’s Court Procedure Act (SCPA) even lists commingling as an explicit ground for trustee removal, underscoring how severely courts view this violation.
A trustee must act solely in the interest of the beneficiaries, placing their welfare above any personal or third-party interest. This is often referred to as the “Exclusive Benefit Rule.”
The Duty of Prudence: The “Prudent Investor” Standard
A trustee must manage trust assets with the care, skill, and caution that a prudent person would use in managing their own affairs. This duty is codified in the New York Prudent Investor Act (EPTL § 11-2.3) and emphasizes process over outcome. Courts evaluate the trustee’s decision-making process at the time of the decision, not the investment’s eventual performance.
Key principles under this duty include:
- Standard of Conduct, Not Outcome: A loss in value alone does not prove a breach; imprudent decision-making does.
- Total Portfolio View: Trustees must evaluate investments within the context of the entire portfolio and the trust’s overall risk-return objectives, not as isolated assets.
- Mandatory Considerations: Trustees must consider the trust’s size, liquidity needs, economic conditions, inflation or deflation risks, and expected tax consequences.
Perhaps the most vital aspect of prudence is the duty to diversify investments, unless it is demonstrably in the beneficiaries’ best interests not to do so. A bank trustee was held liable for retaining an overconcentrated position in Kodak stock as its value collapsed, costing the trust millions. The court held that failure to diversify was a breach of prudence and also a breach of impartiality.
The Duty of Impartiality: Balancing Competing Interests
Trustees must act fairly and impartially toward all beneficiaries, without favoring one over another. This duty often creates practical challenges, especially in trusts with both income and remainder beneficiaries.
- Income Beneficiaries (such as a surviving spouse) typically prefer investments that generate steady income, such as dividends, interest, or rent.
- Remainder Beneficiaries (often children from a prior marriage) prefer strategies that preserve and grow the principal over time.
An investment plan that heavily favors one side, such as only growth stocks with no income yield, can constitute a serious breach of impartiality. A single imprudent act can therefore cascade into multiple violations, showing why serving as a trustee in New York is a role filled with complexity and legal risk.
| Fiduciary duty | What it requires | Example of a breach |
|---|---|---|
| Duty of loyalty | Act only in the beneficiaries’ best interests and avoid conflicts of interest. Do not use trust assets for personal gain or mix trust funds with personal funds. | Using trust money or property for personal purposes, selling trust assets to yourself or a family member, or keeping trust funds in your own bank account. |
| Duty of prudence | Manage and invest trust assets with care, skill, and caution, following the New York Prudent Investor Act. Consider the whole portfolio, risk and return, liquidity needs, and tax effects. Diversify investments unless it is clearly in the beneficiaries’ best interests not to do so. | Leaving most of the trust in one stock or risky investment that later loses value, without a good reason or proper review. |
| Duty of impartiality | Treat all beneficiaries fairly and balance the interests of income beneficiaries and remainder beneficiaries. Investment and distribution decisions should not unfairly favor one group over another. | Choosing investments that produce high growth but little income so a surviving spouse receives almost nothing, or focusing only on current income and failing to protect principal for children who inherit later. |
Central New York Revocable Trust Lawyers – Davies Law Firm
Frederick P. Davies
Frederick P. Davies is the founder and senior attorney of the Davies Law Firm, P.C. With more than 30 years of experience, Mr. Davies focuses his practice on estate planning, wills, trusts, probate, long-term care, and Medicaid planning. A graduate of Syracuse University College of Law, he is admitted to practice before the U.S. Supreme Court, U.S. Tax Court, and state courts in both New York and Connecticut. His distinguished service as a Judge Advocate in the U.S. Navy and later with the Air National Guard gave him extensive trial experience and deepened his knowledge of estate and tax law.
As a respected Central New York revocable trust lawyer, Mr. Davies has delivered more than 1,000 seminars on estate planning, living trusts, and elder law topics, earning recognition as a leading authority in the field. He is a member of the American Bar Association, the New York State Bar Association, and the Estate Planning Council of Central New York.
William P. Davies
William P. Davies is a partner at the Davies Law Firm, P.C. Licensed in both New York and Florida, he provides comprehensive guidance in trusts, estate planning, tax strategies, and probate administration. A magna cum laude graduate of Albany Law School, Mr. Davies went on to earn an advanced L.L.M. in Estate Planning from the University of Miami. His legal scholarship includes published articles in the Albany and Syracuse Law Reviews and contributions to New York’s Power of Attorney commentary.
As a top-rated Central New York revocable trust lawyer, Mr. Davies is known for his precision, professionalism, and client-centered approach. He has presented at major legal conferences, served as President of the Estate Planning Council of Central New York, and continues to be a strong advocate for sound estate planning practices.
A Trustee’s Powers Under New York Law
To carry out their fiduciary duties, a trustee must have the legal authority to act on behalf of the trust. This authority is referred to as the trustee’s powers. The primary source of these powers is the trust document itself, which often specifies what the trustee may or may not do. However, when the trust instrument is silent or does not limit certain powers, New York law provides a comprehensive set of default powers that automatically apply.
These statutory powers are outlined in New York Estates, Powers and Trusts Law (EPTL) § 11-1.1, which governs the actions of executors, administrators, and trustees alike. Unless expressly restricted by the trust document, these powers give the trustee broad authority to manage and protect trust assets effectively.
Under New York law, a trustee has the authority to:
- Invest and reinvest trust property.
- Sell, mortgage, or lease trust real estate.
- Collect rents, income, and profits from trust property.
- Make ordinary repairs and pay expenses necessary to maintain trust property.
- Effectively maintain insurance to protect trust assets against loss or damage.
- Grant options for the sale of property (for a period not exceeding six months).
- Accept additional assets added to the trust, such as property transferred from a will or another trust.
These powers provide trustees with the flexibility to manage the trust estate in a practical, businesslike manner, ensuring that assets are preserved, productive, and properly administered.
Powers vs. Duties: Authority Bound by Obligation
It is essential to understand that a trustee’s powers do not override their fiduciary duties. The existence of a power, such as the power to sell or invest, does not require the trustee to use it, nor does it excuse a misuse of that power.
For example, a trustee who sells a family residence at a below-market “fire-sale” price, or at a time that undermines the trust’s stated purpose, may be found to have breached the duty of prudence or loyalty, even though the sale itself was legally authorized.
Day-to-Day Responsibilities of a Trustee
The legal duties and powers of a trustee translate into a practical, hands-on job that requires careful organization and constant oversight. A trustee serves as an administrator, property manager, and financial overseer all at once. Each of these roles carries specific daily responsibilities that ensure the trust is properly managed and that beneficiaries are protected.
Take Control of and Safeguard Assets
A trustee’s first responsibility is to collect and secure all trust assets. This involves gathering, inventorying, and taking control of every asset that belongs to the trust. In practical terms, this means changing locks on real estate, placing valuables in a secure location such as a safe deposit box, and notifying financial institutions like banks and brokerages of the change in trusteeship.
An immediate and critical task is to obtain a new Tax Identification Number (EIN) from the IRS for the trust. Using this EIN, the trustee must open a dedicated fiduciary bank account in the name of the trust. All income, expenses, and disbursements must flow through this account. This separation is the primary safeguard against the serious breach of commingling trust and personal funds.
Manage Trust Assets and Investments
The trustee must actively manage all trust property in a prudent and businesslike manner.
- Real Estate: The trustee must manage real property responsibly by collecting rent, paying property taxes and insurance, making necessary repairs, and, when applicable, screening and selecting tenants.
- Business Interests: If the trust holds ownership in a closely held business, the trustee must make sound business decisions. This may involve overseeing daily operations, appointing a successor manager, or deciding whether to sell the business to protect the trust’s value.
- Investments: The trustee must manage the trust’s investment portfolio in compliance with the New York Prudent Investor Act, balancing risk and return in the beneficiaries’ best interests.
Administer Distributions to Beneficiaries
A trustee must make distributions exactly as directed in the trust document. Some distributions are mandatory, such as paying all net income to a surviving spouse at set intervals. Others are discretionary, such as allowing the trustee to distribute principal for a beneficiary’s health, education, maintenance, or support.
When exercising discretion, the trustee must use sound judgment, act consistently with the trust’s purpose, and document the reasoning for every decision. Proper documentation protects the trustee from potential disputes and demonstrates that each action was made in good faith.
Maintain Meticulous Records (The Duty to Account)
A trustee must maintain detailed and accurate records of all transactions related to the trust. Every receipt, disbursement, and investment action must be clearly documented. The records must also distinguish between income and principal, as these often belong to different beneficiaries.
Accurate recordkeeping is not optional. These records form the foundation for the formal or informal accountings that trustees are legally required to provide to beneficiaries and, when applicable, to the Surrogate’s Court.
Inform and Communicate with Beneficiaries (The Duty to Inform)
Transparency is one of the most important aspects of trust administration. A trustee cannot act in secrecy. The law requires trustees to keep beneficiaries reasonably informed about the trust’s administration and to respond promptly to reasonable requests for information.
At a minimum, a new trustee should provide all current beneficiaries with a copy of the trust document and up-to-date contact information. Regular and open communication helps build confidence and minimizes the risk of misunderstandings or litigation. Clear communication is the most effective way to maintain trust between the trustee and the beneficiaries.
File and Pay All Required Taxes
Tax compliance is one of the most significant and potentially risky responsibilities of a trustee. Failure to file or pay the trust’s taxes on time can result in personal liability for the trustee, including penalties and interest.
Each year, the trustee must file two primary income tax returns:
- Federal: IRS Form 1041, U.S. Income Tax Return for Estates and Trusts, which reports the trust’s income, deductions, and distributions.
- New York State: Form IT-205, Fiduciary Income Tax Return.
In addition, the trustee must prepare Schedule K-1 forms for each beneficiary, showing their share of the trust’s income or deductions. These forms must be sent to beneficiaries so they can properly report their income on personal returns. The preparation and delivery of K-1s serve as both an accounting mechanism and a form of required communication between the trustee and the beneficiaries.
Risks, Liability, and Removal
Serving as a trustee is one of the most serious legal responsibilities an individual can undertake. When a trustee fails to perform their duties correctly, the consequences can be severe.
Personal Liability for Breach of Duty
A trustee is personally liable for any financial loss to the trust that results from a breach of fiduciary duty. This means that if a trustee’s misconduct or negligence causes harm, they must reimburse the trust from their own personal funds.
Common examples of breaches that lead to personal liability include:
- Negligent Mismanagement: Making poor or uninformed investment decisions or failing to diversify the trust’s portfolio in accordance with the Prudent Investor Act.
- Administrative Failure: Commingling personal and trust funds, neglecting to pay taxes on time, or incurring penalties due to poor recordkeeping.
- Disloyalty: Engaging in self-dealing, benefiting personally from trust transactions, or acting in a way that creates a conflict of interest.
- Asset Mismanagement: Failing to make trust property productive, such as allowing a rental property to sit vacant and deteriorate, or improperly transferring trust property to a third party.
Trustees who breach their duties often find that good intentions are not a defense. Courts judge trustees by their actions and adherence to fiduciary standards, not by their motives.
Beneficiary Remedies: The Surcharge Action
When beneficiaries believe a trustee has breached their duties and caused a loss to the trust, their main legal remedy is a Surcharge Action in the Surrogate’s Court. This type of proceeding seeks to repair the damage by obtaining a court order that requires the trustee to reimburse the trust for losses caused by their misconduct.
Grounds for a surcharge action typically include evidence of:
- Embezzlement, fraud, or self-dealing.
- Using trust funds for personal expenses, such as vacations or household bills.
- Negligent or reckless oversight of investments.
- Failing to complete the trust administration within a reasonable time.
Proving a surcharge claim is not simple. Beneficiaries must present clear evidence to convince the court that a breach occurred and that it directly caused financial harm. These cases often involve extensive document review, depositions, and expert testimony from forensic accountants or financial professionals.
Removal of a Trustee by the Surrogate’s Court
Beneficiaries cannot remove a trustee simply because they disagree with them or distrust their judgment. Removal is a formal legal process that can only occur under specific statutory grounds.
The primary New York statutes governing trustee removal are SCPA § 711, which allows interested parties to petition the court to remove a trustee for cause, and SCPA § 719, which permits the court to remove a trustee without process for particularly serious violations.
Common statutory grounds for removal include:
- Conviction of a felony.
- Commingling trust funds with personal funds.
- Wasting, misappropriating, or improperly applying trust assets.
- Refusing to comply with a court order, such as failing to provide an accounting.
- Removing trust property from New York without prior court approval.
- Being deemed unfit for office due to dishonesty, substance abuse, or a demonstrated lack of understanding of trustee duties.
The courts take these obligations seriously. In Matter of Brissett, a fiduciary who repeatedly failed to file a court-ordered accounting was held in contempt and faced imprisonment. This case shows that trustees who neglect their obligations may face not only financial penalties but also personal sanctions, including incarceration.
Protect Your Future with Trusted Legal Guidance
Serving as a trustee can be a complicated responsibility, but you don’t have to handle it alone. Whether you’re managing an existing trust or preparing to establish one, working with an experienced Central New York revocable trust lawyer can help ensure that every decision you make aligns with state laws and your fiduciary responsibilities.
At Davies Law Firm, P.C., our attorneys are dedicated to assisting clients in protecting their assets, fulfilling their trustee duties, and creating estate plans that bring lasting peace of mind. For trusted legal support in trust administration or estate planning, call (315) 472-6511 today to schedule a telephone conference and take the first step toward safeguarding your legacy.
