Legal Duties of Trustees in Hawaii - Explaining Trustee's Duties

    When someone first learns that he or she has been named as a trustee of a trust, they may feel a sense of pride or flattery.  However, being a trustee is often times an unenviable position to be in.  Yes, a trustee is afforded power and control of trust assets, but "With great power comes great responsibility."  This adage is particularly applicable to trustees since their authority is tempered by a myriad of responsibilities and duties.  A trustee is not an authoritarian or dictator (even though some act like they are), but instead are more akin to an administrator.  The trustee must never forget that, at the end of the day, the trust beneficiaries wield the true power since they are the ones the trustee must answer to.  
     The trustee-beneficiary relationship begins with the simple fact that a trustee is a fiduciary.  The law imposes legal duties on trustees, some of which will be discussed below.  In Hawaii, Hawaii Revised Statutes Section 560:7 outlines the statutory duties and liabilities of a trustee.
      According to Hawaii Revised Statutes Section 560:7-302, when dealing with trust assets, a trustee must act with the care of a prudent person.  However, if a trustee has special skills or expertise or made representations that he or she possesses special skills or expertise, the trustee is obligated to use those skills.  Consequently, a trustee with special skills may also be held to a higher standard if something goes awry.  For example, if a trustee is a financial advisor, but makes highly questionable investments, he or she may be held personally liable for any losses resulting from those failed investments.  Without question though, all trustees must exercise reasonable care and skill.  When examining a trustee's actions, the court will usually consider the trustee's decision in the context of the facts and circumstances at the time the decision was made.
      Hawaii Revised Statutes Section 560:7-303 states that a trustee has a continuing duty to keep beneficiaries informed of the trust's administration and to provide the beneficiaries with, at the very minimum, an annual accounting.  A trustee also has a duty to provide beneficiaries with a copy of the terms of the trust that pertain to and affect a beneficiary's interest in the trust and information regarding the trust's assets.
     In addition to these statutory duties, trustees must also be cognizant of these well-recognized duties and responsibilities:
     Duty to Administer Trust Expeditiously:  What often times gets a trustee into trouble is a failure to act.  Or, if the trustee does act, he or she only does so intermittently.  The trustee's inaction may not have any malicious intent or motive, but could simply be a byproduct of dealing with their own busy lives.  However, being preoccupied is not an acceptable reason for a trustee to sit on their duties and responsibilities or not put forth a reasonable effort to administer the trust.  The trustee must actively participate in the trust's administration because beneficiaries (especially if they're discontent) may not be so understanding about delays.   
     Duty of Loyalty:  Generally speaking, a trustee cannot have their interests conflict with those of the trust (e.g. engaging in business that competes with the trust).  A trustee is also prohibited from transacting business with the trust where the trustee may benefit directly or indirectly.  A common violation occurs when a trustee borrows or embezzles trust funds.  This mainly happens when there is a lack of oversight or supervision over the trustee.
     Duty to Keep Trust Property Separate:  A trustee should never, under any circumstances, commingle trust property with his or her personal property or with any other property not owned by the trust.  This has a practical application because accounting for the trust property is simplified when trust investments and cash are kept in separate trust accounts.
     Duty to Make Trust Property Productive:  A trustee has a duty to invest trust property to produce income for the beneficiaries.  For example, if the trust owns real property that has the potential to be rented out, the trustee has a duty to find tenants that would pay fair market value to live there.  A trustee should not leave the property vacant merely because it would be less of an administrative burden.
     Duty to Avoid Conflict of Interest: A trustee can neither use trust property for their own personal gain nor be part of an transaction that the trustee has an interest adverse to a beneficiary. 
     If a trustee is derelict in adhering to any of the aforementioned duties (and others that are not covered in this post), they leave themselves vulnerable to dealing with malcontent beneficiaries and, possibly, a lawsuit filed by the aforementioned malcontent beneficiaries.  If you are a trustee in Hawaii and feel overwhelmed or unsure about what to do, contact a Hawaii estate planning attorney who can advise you on fulfilling your trustee duties and responsibilities.