Trustee Duties and Responsibilities Under New York Law

If you have accepted the role of trustee of a New York trust, you hold a position of significant legal responsibility. A trustee must manage trust assets for the benefit of beneficiaries, follow the terms of the trust document, comply with New York law, and perform duties with care, loyalty, and impartiality. Breach of these duties can expose a trustee to personal liability.

Understanding your duties as a trustee under New York’s Estates, Powers and Trusts Law (EPTL) is essential. This article explains the core duties that apply to all trustees, the duties imposed by the Prudent Investor Act, requirements for trust accounting and disclosure, and the processes for trustee compensation, removal, and trust modification.

Core Trustee Duties Under EPTL 11-1.1 Through 11-2.3

New York’s EPTL Articles 11-1 and 11-2 establish a comprehensive framework of trustee duties. These duties apply to all trustees administering trusts in New York or trusts with New York beneficiaries.

General Duty to Administer the Trust (EPTL 11-1.1)

EPTL 11-1.1 establishes the trustee’s fundamental duty to administer the trust according to its terms. Specifically, the trustee must:

• Know and understand the terms of the trust document
• Comply with all provisions of the trust
• Honor the intent of the person who established the trust (the grantor)
• Manage trust assets for the exclusive benefit of the beneficiaries
• Take all actions necessary to carry out the trust’s purpose

This is the foundational duty. Any action the trustee takes must be consistent with the trust document and must serve the beneficiaries’ interests.

Duty of Loyalty (EPTL 11-1.1(a)(2))

Under New York law, a trustee owes an absolute duty of loyalty to the beneficiaries. This means:

• The trustee must act solely in the interests of the beneficiaries, not in their own personal or financial interest
• The trustee cannot engage in self-dealing (buying from or selling to the trust, or purchasing assets with trust funds)
• The trustee cannot compete with the trust
• The trustee must disclose all conflicts of interest
• The trustee cannot use trust information for personal advantage

For example, if you are trustee of a family trust and the trust owns commercial real estate, you cannot purchase that real estate from the trust at an artificially low price or lease it to yourself at advantageous terms.

If you have a conflict of interest, you must disclose it immediately to all beneficiaries and, if the conflict is significant, you may need to recuse yourself from the decision or seek court permission.

Duty of Impartiality (EPTL 11-1.1(a)(3))

If a trust benefits both income beneficiaries (those receiving trust income during their lifetime) and remainder beneficiaries (those receiving the principal after the income beneficiary dies), the trustee must treat all beneficiaries fairly.

This means the trustee cannot favor one class of beneficiary over another. For example:

• If the trust produces $100,000 in annual income and specifies that income goes to the surviving spouse while principal goes to the adult children, the trustee cannot invest all trust assets in stocks (favoring growth for remainder beneficiaries) at the expense of income production for the surviving spouse
• The trustee must consider the interests of both classes and strike a fair balance

This duty of impartiality applies even when the trustee is one of the beneficiaries.

Duty of Prudence (EPTL 11-2.3, Prudent Investor Act)

New York has adopted the Prudent Investor Rule, codified in EPTL 11-2.3. Under this rule, a trustee must invest trust assets as a prudent investor would, considering:

1. The composition of the overall portfolio, not individual investments in isolation
2. The objectives and distribution requirements of the trust
3. The amount and nature of the estate and any other resources
4. The inflation and its expected effect on principal and income
5. The role each investment serves in the trust’s overall portfolio
6. The need to diversify investments

The Prudent Investor Rule focuses on the total portfolio performance and overall risk management, not on whether any particular investment turns out to be profitable.

The trustee must also:

• Diversify investments to reduce risk (unless diversification is not prudent given the circumstances, such as a directive to hold family business)
• Review investments periodically and adjust as necessary
• Delegate investment management if the trustee lacks the necessary expertise
• Keep detailed records of investment decisions and their rationale

If the trust explicitly authorizes specific investments or restricts diversification (for example, “hold the family business”), the trustee must follow those instructions even if they might not reflect the Prudent Investor Rule.

Additional Core Duties

Duty to Furnish Information (EPTL 11-1.1(a)(4))

A trustee must provide beneficiaries with:

• An initial accounting upon taking office
• Annual accountings showing all receipts, disbursements, and trust assets
• Information upon request regarding the trust’s status and proposed actions
• Notification of the trust’s existence and the trustee’s identity

Beneficiaries have the right to inspect trust documents (with limited exceptions) and to understand how the trust is being managed.

Duty to Preserve and Protect Trust Assets

The trustee must:

• Take possession and control of all trust assets
• Obtain and maintain insurance on trust property
• Ensure that trust property is properly titled
• Take steps to preserve and protect assets
• Prevent waste or dissipation of trust property

For example, if the trust owns residential property, the trustee must maintain insurance, make necessary repairs, and prevent the property from falling into disrepair.

Duty to Collect and Safeguard Assets

The trustee must:

• Collect all assets that belong to the trust
• Take steps to locate assets that may not have been transferred to the trust during the grantor’s lifetime
• Establish appropriate investment accounts and properly title assets
• Safeguard assets against loss or theft

Duty to Account

A trustee must maintain detailed records of all trust transactions. The trustee must:

• Keep accurate records of all receipts and disbursements
• Maintain documentation supporting all transactions
• Prepare accountings at least annually, more frequently if required by the trust
• Provide accountings to beneficiaries as required by law or the trust

If a trustee fails to provide accountings, beneficiaries may file a petition with the court to compel the accounting.

Trust Distributions and the Trustee’s Role

The trustee has responsibility for determining when and to whom distributions should be made. The trustee’s authority is determined by the trust document.

Discretionary Distributions

Many trusts give the trustee discretion to make distributions for specific purposes, such as “for the health, education, maintenance, and support of the beneficiary.” In these cases, the trustee has discretion to determine:

• Whether to make a distribution
• The amount of the distribution
• When the distribution should be made

The trustee’s discretion is not unlimited. The trustee must:

• Act reasonably and in good faith
• Consider the trust’s purpose and the beneficiary’s circumstances
• Exercise discretion according to an ascertainable standard (if the trust specifies one)
• Not abuse discretion by making unreasonable decisions

If a beneficiary believes the trustee is abusing discretion (for example, refusing all distributions for health and education), the beneficiary can petition the court to compel appropriate distributions.

Mandatory Distributions

If the trust specifies that certain distributions are mandatory (for example, “all income to the spouse for life” or “one-third of the principal to each child at age 30”), the trustee must make those distributions as specified. The trustee has no discretion.

Trustee Compensation (SCPA 2309)

Unless the trust specifies otherwise, a trustee is entitled to reasonable compensation for performing trustee duties. Reasonable compensation is determined by SCPA 2309 and depends on:

• The size and complexity of the trust
• The time and effort required
• The trustee’s expertise
• Standard compensation charged by professional trustees in the area

Typical professional trustee fees range from 0.5% to 1.5% of trust assets annually, though this varies based on the circumstances. These are not statutory rates but rather typical market rates charged by professional trustees. SCPA 2309 provides for “reasonable compensation” without a fixed rate schedule.

A trustee may decline compensation or agree to accept less than the statutory amount. If the trustee is a family member, they may choose to serve without compensation.

Trustee compensation must be approved by the beneficiaries or, if they cannot agree, by the court. The trustee should document the basis for any compensation charged.

Professional Trustee Fees vs. Family Trustee Compensation

Professional trustees (banks, trust companies) typically charge the higher end of reasonable compensation ranges and may charge additional fees for specific services (investment management, tax preparation, accountings, etc.).

Family members serving as trustee may charge reasonable compensation but should be modest and document their work if they intend to claim compensation.

Trustee Powers and Limitations

A trustee has only the powers granted by the trust document or by New York law. Common trustee powers include:

• Authority to sell, mortgage, lease, or otherwise dispose of trust property
• Authority to invest and reinvest trust assets
• Authority to receive and collect trust income and principal
• Authority to pay trust expenses and make distributions
• Authority to borrow money or obtain credit on behalf of the trust
• Authority to compromise claims or settle disputes

These powers are limited by the trustee’s fundamental duty to act for the exclusive benefit of beneficiaries.

Trustee Liability and Breach of Duty

A trustee can be held personally liable if they breach any of their duties. Breach of duty can result in:

• Liability for losses to the trust
• Removal as trustee
• Loss of trustee compensation
• Personal liability for damages

Common breaches of trustee duty include:

• Self-dealing or conflict of interest
• Imprudent investments that cause loss
• Failure to diversify
• Failure to account to beneficiaries
• Favoritism between beneficiaries
• Waste or mismanagement of assets

Beneficiaries who believe a trustee has breached duty can file a petition in court requesting removal of the trustee and compensation for damages.

Trustee Removal and Successor Trustees (SCPA 315-A)

A trustee can be removed for:

• Breach of fiduciary duty
• Incapacity or inability to perform duties
• Conflict of interest that cannot be managed
• Beneficiary petition showing cause

Under SCPA 315-A, a Surrogate’s Court can remove a trustee for cause upon petition by beneficiaries, a co-trustee, or the court’s own motion.

When a trustee is removed or resigns, a successor trustee takes office. The trust document typically specifies who should serve as successor. If no successor is named or the designated successor cannot serve, the court will appoint a successor.

Trust Modification and Termination (EPTL 7-1.1, et seq.)

While a trustee must generally administer the trust according to its terms, there are limited circumstances where the trust can be modified or terminated:

Modification by Agreement

If all beneficiaries are competent adults and agree, the trust can be modified or terminated with court approval. This is called “consent to modification.”

Modification in the Beneficiary’s Interest

A court can modify a trust if the modification is in the best interest of the beneficiaries and the modification does not frustrate a material purpose of the trust.

Termination of Small Trusts

A court can order termination of a trust if the value of trust assets is so small that the costs of administration outweigh the benefits of maintaining the trust.

Decanting

A trustee may have the authority to “decant” a trust, meaning to pour over trust assets into a new trust with modified terms. This requires specific language in the trust document authorizing decanting.

Documenting Trustee Decisions

A trustee should maintain detailed documentation of all significant decisions, including:

• Investment decisions and their rationale
• Distribution decisions and the basis for discretionary choices
• Consultations with beneficiaries or advisors
• Professional appraisals or valuations
• Tax advice or guidance

This documentation protects the trustee by demonstrating that decisions were made prudently and in good faith.

Working with Professional Advisors

Many trustees benefit from working with professional advisors, including:

• An estate planning attorney (for interpretation of trust terms and legal issues)
• A tax professional (for income tax and estate tax issues)
• A financial advisor or investment manager (for investment decisions)
• An accountant (for trust accounting and tax compliance)

A trustee can delegate certain duties (such as investment management) but remains responsible for ensuring that delegated duties are performed appropriately. The trustee should review the advisor’s work and ensure it aligns with the trust’s objectives.

Common Trustee Mistakes to Avoid

• Failing to maintain separate trust accounts or properly title trust assets
• Mixing trust assets with personal assets
• Failing to obtain bonding if required
• Failing to file required income tax returns
• Failing to account to beneficiaries or provide information
• Making distributions without adequate documentation
• Investing imprudently without diversification
• Favoring one beneficiary over another
• Engaging in self-dealing or conflicts of interest
• Failing to update investment strategy as circumstances change

Conclusion

Serving as trustee is a position of significant legal responsibility. A trustee must administer the trust according to its terms, act with loyalty and impartiality, invest prudently, provide accountings to beneficiaries, and manage distributions according to the trust’s provisions.

If you are serving as trustee of a New York trust, or are considering accepting the role, consult with an estate planning attorney to ensure you understand your duties and the applicable law. Marc R. Lynde, Esq., can advise you on trustee responsibilities, help you understand the trust document, assist with accountings and distributions, and represent you if disputes arise between trustees and beneficiaries.

For questions about your duties as trustee or for guidance on trust administration, contact our office to discuss your specific situation.