Ohio trustees are fiduciaries, bound to act in the best interests of the beneficiaries of the trusts they are managing. As such, they frequently face ethical dilemmas regarding their duties. Let's talk about some of the ethical issues in trust administration, along with suggestions for addressing them.
Most trustees have the best of intentions, but may not anticipate some of the scenarios that could arise in the course of their administration of the trust. By considering some potential ethical pitfalls in advance, trustees can be better prepared to handle these situations.
Certain duties are imposed on trustees by Ohio statute. These include a duty of communication, which requires a trustee to "keep the current beneficiaries of the trust reasonably informed about the administration of the trust and of the material facts necessary for them to protect their interests.” Trustees also have a duty of confidentiality, by which they are bound to "administer the trust in good faith, in accordance with its terms and purposes and the interests of the beneficiaries" and of course, as with Ohio law.
These ethical obligations are in many ways analogous to those that attorneys have to their clients. But while attorneys also have clear guidance regarding dealing with conflicts of interest or dealing with clients with diminished capacity, Ohio law provides no such guidance for trustees. Unfortunately for trustees, in the course of administering a trust, they may often encounter the need for guidance in these areas.
A trust may have only one beneficiary, or it may have many, as in the case of a trust that a family patriarch or matriarch (the "settlor") created for the benefit of children and grandchildren. Trustees may often have to field requests for distributions from beneficiaries. Each distribution, if made, may reduce the benefits available to other beneficiaries. Furthermore, if the trust has current beneficiaries and remainder beneficiaries, trustees must balance the requests of current beneficiaries against the possibility that granting those requests could adversely affect what remainder beneficiaries will have available to them.
If all beneficiaries get along and are fair-minded, not wanting to take more than their share, that makes things easier on a trustee. Unfortunately, disagreements and animosity or even estrangement among family members is often one reason the settlor decides on a trust in the first place, with a neutral third-party trustee overseeing management and distribution of assets.
Ohio Revised Code 5808.03 states that "If a trust has two or more beneficiaries, the trustee shall act impartially in investing , managing, and distributing the trust property, giving due regard to the beneficiaries' respective interests." This tells a trustee what to do, but not necessarily how to do it.
ORC 5808.10, which requires trustees to keep adequate records of trust administration, provides a clue. A trustee would be well advised to have a protocol by which he or she makes determinations as to whether or not to grant a request for distribution by a beneficiary. Since all beneficiaries would have the right to receive statements about what distributions the trust has made, when, and to whom, it would be valuable to the trustee to be able to point to the protocol in fielding the inevitable questions about why certain distributions were made. Meticulous documentation of process can be invaluable in avoiding trouble for the trustee.
Depending on the relationships involved and the configuration of settlor(s), trustee(s), and beneficiaries, any number of difficult scenarios could arise. What if there are two trustees, one of whom wants to approve a request for distribution from a beneficiary, and one who doesn't? What if a co-trustee is also a beneficiary? What happens if a settlor-beneficiary of a revocable trust develops dementia? Can a spouse acting as agent under a power of attorney stand in the settlor's shoes and request distributions of a third-party trustee?
These are just a few of the many ethical quandaries that a trustee may encounter in carrying out his or her duties. A trustee might regularly be put in a position where honoring a duty to a settlor or beneficiary might violate a duty to another. These proper answer in these situations is often highly dependent on both the facts and the language of the trust instrument, as well as Ohio law.
It is best for trustees to work with an experienced trust administration attorney on a regular basis to sort out ethical dilemmas and avoid unintentional violations of their duties. If you are charged with administering an Ohio trust, especially where there are multiple beneficiaries, co-trustees, or questions of legal capacity on the part of a settlor, you should retain and consult with a knowledgeable attorney.
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