DOES A TRUSTEE HAVE AUTHORITY TO SELL ASSETS?
A trustee is a person or entity responsible for managing and administering your trust. They must ask according to your instructions and state law. As a fiduciary, a trustee must protect the trust’s investments and act in the best interests of the beneficiaries. They must prepare and maintain trust accounting records and prepare tax-related forms. They also must provide this information to the beneficiaries at their request.
At some point, they may need to liquidate or sell the trust’s accounts and property. So, how do they obtain the authority to do this? We'll explore the powers of trustees in this blog.
A Trustee’s Authority to Sell Assets While Administering the Trust
When administering a trust, the trustee might encounter situations in which they need to convert trust assets into cash to provide liquidity to the trust. This could mean selling stocks, bonds, real estate, or other high-value assets to generate funds. Though this decision must be based on prudent investor rules or standards and be in the best interest of the beneficiaries, trustees generally don't need beneficiary approval to liquidate or sell trust property. But, they may want to avoid potential arguments in court regarding their decisions and authority. The biggest restriction is that trustees aren't allowed to sell trust property for their own benefit. There may be an exception to this restriction if the trustee is also a trust beneficiary.
Creating Liquidity
A trustee may need to create liquidity for various reasons:
Meeting financial obligations. The trust may have ongoing financial commitments, such as taxes, mortgage payments, or insurance premiums. By creating liquidity, the trustee can fulfill these obligations.
Covering administrative costs. There could be administrative expenses related to legal and accounting services, as well as fees for managing the trust. Creating liquidity ensures that the trustee can cover these costs promptly and efficiently.
Fulfilling distributions. If the trust mandates distributions to beneficiaries, creating sufficient liquidity allows the trustee to meet these distribution requirements in a timely manner.
Responding to opportunities or challenges. Market opportunities or unexpected financial challenges may arise that require quick access to funds. Creating liquidity enables the trustee to seize favorable investment opportunities or address unforeseen financial needs effectively.
Investment Strategy
A trustee has the authority and responsibility to manage the trust’s investments in a manner that aligns with the trust’s goals and changing financial circumstances. It may be necessary to modify the investment strategy for a variety of reasons:
Evaluating economic conditions. The trustee must continuously evaluate economic conditions, market trends, and the performance of the trust’s assets. If the existing investment strategy no longer serves the trust’s objectives, the trustee may need to consider adjustments.
Risk management. Based on the trust’s performance and the financial landscape, the trustee may need to rebalance the portfolio. They do this to ensure an appropriate level of risk and potential return. This could involve diversifying or reallocating investments.
Adapting to beneficiary needs. Changes in beneficiary circumstances, such as increased education expenses or healthcare needs, may necessitate a shift in the investment strategy. The trustee may need to generate income or accommodate specific beneficiary requirements.
Long-term growth versus income generation. Depending on the trust’s purpose, the trustee may need to adjust the investment approach to prioritize long-term growth, income generation, or a balanced approach, ensuring the trust's sustainability and fulfillment of its intended purpose.
You Can Control the Sale of Trust Assets
If you are the trust maker and have concerns about a trustee’s authority to liquidate or sell accounts and property, you can provide specific guidelines controlling the sale of the trust’s assets.
When establishing a trust, you may have specific assets you would like to preserve. Sometimes, this is for sentimental reasons, future generations, or other purposes. However, you should be cautious when restricting the liquidation or sale of assets.
Placing restrictions on liquidating or selling assets in the trust can help preserve family heirlooms. However, overly restrictive provisions can present challenges to the trustee. This comes up especially in situations where:
The trust may need cash
There is a need to change the investment strategy
There is a need to meet financial obligations
There have been changes in tax laws, economic conditions, or family dynamics.
It is essential to strike a balance between preserving important assets and allowing the trustee the flexibility needed to effectively manage the trust. When you do this, you ensure the trust’s long-term viability in the best interests of the beneficiaries.
A Trustee’s Responsibility to Beneficiaries
Overall, the trustee must adhere to the instructions laid out in the trust agreement. If the trust’s terms specify that the trustee must distribute money or property to a beneficiary at a particular date or upon meeting specific conditions, the trustee is obligated to follow these instructions. That is why making informed decisions when creating a trust is important.
Communication Between a Trustee and Beneficiaries Is Critical When Selling Trust Assets
The trustee is usually required to maintain open communication with both the beneficiaries and any co-trustees. They must keep these parties informed about the trust’s status and decisions. Transparency helps answer questions about distributions and manage expectations.
Accurate and thorough recordkeeping is essential to demonstrate compliance with the trust terms and the law. Detailed records can help explain the rationale behind each decision, and relevant documents can support the actions taken by the trustee.
If you are a trustee and are unsure about the trust terms relating to the management or sale of assets, we can assist you. Our firm is unique in the fact that we have experienced trust attorneys on staff as well as financial planners. If you are creating an estate plan that includes a trust, working with an experienced attorney can help ensure you protect the beneficiaries.
We can help you memorialize your intentions in your trust agreement and strike a balance between preserving your life savings and granting the trustee the necessary flexibility to manage the trust successfully. Give us a call at 614-389-9711 to schedule your appointment today.