When creating a trust to protect and support your loved ones, there are many steps you’ll need to take, from deciding what type you would like to set up to naming a trustee. Appointing a trustee is generally one of the most important steps in this process, as they assume legal control of the assets held in the trust. Additionally, trustees have a significant amount of responsibility, so you’ll need to understand the full extent of the obligations and consider this choice carefully before selecting someone for the role. Continue reading to learn more about the responsibilities and how a Washtenaw County trusts attorney to help you begin the process of creating a trust.
What Is a Trustee Under Michigan Law?
A trustee is responsible for managing the assets held in a trust fund in accordance with the terms and conditions of the trust fund and Michigan’s fiduciary duty standards. While the trustee holds the legal title to the property, they are legally required to use it solely to benefit the beneficiaries of the fund.
Under the Michigan Trust Code, trustees are legally bound by specific statutory requirements, including those covered in MCL 700.7801 (duty to administer trust), MCL 700.7802 (duty of loyalty), MCL 700.7803 (duty of impartiality), and MCL 700.7804 (prudent administration). These help establish enforceable standards of conduct, ultimately requiring trustees to act in good faith and in accordance with the terms and conditions established by the grantor when creating the trust.
Core Legal Definition
- Holds the legal title to trust assets
- Must adhere to rules as per the trust agreement
- Owes fiduciary duties to the beneficiaries
- Must keep trust property separate from personal assets
- Must maintain comprehensive records and tax documentation
When Does a Trustee’s Role Begin?
When the duties of a trustee commence depend on the type of fund established. A revocable living trust typically requires the grantor to serve as the trustee during their lifetime, while naming a successor trustee to assume responsibility upon their death. However, an irrevocable trust generally requires the trustee’s duties to begin immediately upon funding the trust. Understanding when legal authority begins is critical.
Duties During the Grantor’s Lifetime
- Manage and safeguard trust assets
- Adhere to instructions from the grantor
- Maintain complete and correct financial records
- Report taxes when required
- Keep trust property separate
Trustee Duties After the Grantor’s Death
- Locate and review the trust document
- Identify, secure, and inventory all assets held in the trust
- Notify beneficiaries as required by law
- Value real estate and investments
- File the required tax returns
- Pay debts and administer the estate
- Distribute assets in accordance with the terms of the trust
What Fiduciary Duties Does a Trustee Owe in Michigan?
In accordance with Michigan law, the trustees of a fund are legally obligated to act with extensive care when managing a trust fund. This, known as fiduciary duty, is one of the highest legal standards of conduct. Those with this power must act with loyalty, prudence, and in good faith at all times, as these are enforceable under the Michigan Trust Code and may be challenged in probate court. A trustee who breaches these duties may be removed from the role, face fines, or be held legally responsible.
Duty of Loyalty
- Act solely in the interests of the beneficiaries
- Disclose conflicts of interest
- Refrain from using assets improperly
- Avoid personal benefits
Duty of Prudence
- Invest assets in a responsible manner
- Evaluate risk versus return
- Follow Michigan’s prudent investor standards
- Invest when appropriate
Duty of Impartiality
- Treat all beneficiaries fairly
- Avoid bias or favoritism
- Balance interests between income and remainders
Duty to Inform and Account
- Keep beneficiaries informed
- Respond promptly to inquiries
- Maintain comprehensive records
- Provide accounting when required
What Financial Responsibilities Does a Trustee Have?
Trust administration requires significant financial oversight, as trustees are not only responsible for protecting assets but also making investments, paying related expenses, maintaining accurate records, and complying with tax requirements. Unfortunately, due to the nature of this matter, financial mismanagement is generally the most common reason that disputes arise, making careful administration of the estate essential. A trustee must approach the role with diligence, organization, and a complete understanding of the financial expectations and requirements they must uphold.
Trustees who mismanage assets, fail to diversify funds, and do not fulfill their tax obligations can face personal liability. As such, careful documentation and adherence to legal requirements is critical.
Tax Responsibilities
- Filing income tax returns (IRS Form 1041)
- Pay trust income taxes
- Coordinate with accountants if necessary
- Comply with both federal and Michigan state tax laws
Asset Management Responsibilities
- Maintain real estate owned by the trust
- Ensure correct titling of assets held in the fund
- Oversee business interests
- Manage financial accounts
- Protect personal assets
Who Should You Appoint as Trustee?
As mentioned, choosing the correct person to assume the role as your trustee is generally one of the most important estate planning decisions you will make, as this person assumes legal, financial, and administrative responsibility for the assets held in the trust. As such, choosing the wrong person for this role can lead to family disputes, mismanagement of assets, and even intervention by the courts. As such, careful consideration is critical.
In Michigan, anyone can assume the role of a trustee, with a few minor exceptions. If the person is a minor, a non-U.S. citizen, or not of sound mind, they cannot be named a trustee. However, those who are not exempt can serve if you wish to appoint them.
When making this decision, it’s necessary to consider potential conflicts of interest and long-term availability. Trustees can serve for many years, and trusts that hold complex assets can require significant time dedicated to managing it. Choosing someone with the time and experience necessary to properly administer the trust is critical to avoiding financial risks.
Family Member or Friend
- More familiarity with family dynamics
- May not have the necessary financial expertise
- Increases risk of family conflict
Professional or Corporate Trustee
- Objectivity and unbiasedness
- Experience managing complex assets
- Fees generally apply
Naming a Successor Trustee
- Ensures continuity
- Prevents probate court involvement
- Especially important in revocable trusts
Do Trustees Get Paid in Michigan?
As you can see, serving as a trustee requires considerable time, responsibility, and legal exposure. Michigan law allows trustees to receive reasonable compensation for their service, unless it is stated otherwise in the trust fund. Compensation is generally reflective of the time and complexity of the fund, as well as the level of skill and experience required to serve as the trustee.
Can a Trustee Be Removed?
If a trustee fails to perform their duties as required, the beneficiaries of the fund may petition the probate court for their removal. If this occurs, the court will examine whether or not they have breached fiduciary duties, mismanaged assets within the funds, or otherwise failed to properly administer the fund. Removal is considered serious legal action and can result in liability. Understanding the grounds for removal and potential consequences is critical when appointing a trustee.
Grounds for Removal
- Breach of fiduciary duty
- Conflicts of interest
- Failure to communicate
- Failure to keep comprehensive records
- Improper management of assets
Contact Our Dedicated Michigan Estate Planning Firm Today
When you need an attorney to help you create your trust, Collis, Griffor & Hendra are here to help. Our experienced law firm can help you through the process of placing your assets in the trust fund that best matches your needs. Contact us today to learn how we can help.