§ 180. Relations to Beneficiaries

Apart from the strictly legal requirements, a trustee should cultivate open and friendly relations with the beneficiaries of the trust. So far as possible, the beneficiaries should understand the exact obligations of the trustee and also the limitations under which he works.

Statements should be typewritten, and where women and others unused to business are the beneficiaries, it is always well to make sure that they understand the statements made. Lawyers, bankers, and business men rarely realize how little business and technical information is possessed by the average man or woman outside of business or professional life. To avoid the appearance of stupidity, such people many times accept or assent to matters that they do not understand, or when these are explained miss the explanation because it is couched in technical language with which they have never had an opportunity to familiarize themselves sufficiently. A little extra pains in making things really clear to beneficiaries will be highly appreciated and tend to preserve a feeling of friendly confidence.

§ 181. Statutory Requirements

The general principles of law governing trustees are the same in all parts of the country, but each state has its own procedure and in some cases the general law is embodied in its statutes. It follows that a trustee should be familiar with the legislation of his own state so far as it affects his duties. Likewise, before creating a trust, the statutory laws should be examined with care, or the maker may attempt some form of trust estate forbidden by the law.

In New York, for instance, in addition to prescribing the broad powers of the surrogates' courts in all matters pertaining to testamentary trustees and detailed procedure in dealing with their accounts, the statute law prescribes qualifications,

and the causes and procedure for removal of testamentary trustees. Most of these statutes merely declare in positive language what the courts have decided was law.

§ 182. Carrying on a Business

It is not usual for a trustee to carry on a business of the estate. He should not do so unless specifically directed by the instrument that created the trust. At times he may have to close up and dispose of the proceeds of a going business, and in such case his duty would be to do so to the best advantage and with the least delay. If closing up involves the conduct of the business for any time, the executor or the trustee should secure an order of the court, or, if the beneficiaries can consent (are of legal age), should have the consent of all interested. The five conditions under which a trustee is not liable for loss in running a business are:

1. Where consent has been given by all interested.

2. Where the business has been carried on by direction. of the court.5

3. Where explicit and personal directions have been given in the will.

4. Where directions have been given in the articles of partnership.

5. Where statutes in some of the southern states permit. closing up of farming operations.

A trustee who conducts a business without authority from the will, an order of court, or consent of all interested, is seeking trouble for himself and will usually succeed in his search."

§ 183. Keeping Accounts

It is of the highest importance that a trustee should keep full and accurate records of all his transactions with trust Schouler, Wills, Executors and Administrators, Vol. I, p. 432. Matter of Peck, 79 App. Div. (N. Y.) 296.

funds and property: (1) because he must know exactly what income he is making in order to know what amount to pay the beneficiaries from time to time; and (2), in order that he may be able to make statements of his trusteeship that will satisfy the court and enable him to get a decree of final settlement that will discharge him from all liability.

In New York, by statute, a testamentary trustee may file at any time a voluntary intermediate account, or he may by order of court have to file a compulsory intermediate account. In such case those interested are cited to attend and the account will be examined and, if correct, will be judicially settled. In like manner a trustee may file a final accounting or may be compelled to do so.

§ 184. Compensation

At common law a trustee received no compensation. In most of the states this has been remedied by statute. In New York, executors who afterwards become trustees are allowed double compensation if the trust is separable from the executorship. In many cases an executor is given duties that are those of a trustee, but there is no line of practicable separation. The man who writes a will should himself distinguish between the duties of an executor and those of a trustee, and when he desires a trust extending over a term of years, he should separate the trust from the more simple functions of the executor and should provide for ample compensation for the trustee or trustees.?

Executors may often arrange this themselves by making their final accounting as executors, and when this is approved, securing an order from the court directing that the trust funds or property be turned over to them as trustees to carry out the purposes of the trust.

If a trust company is to be trustee, it would probably de

Robertson v. De Beulatour, 188 N. Y. 301.

cline to act if the trust involved work and liability with no compensation.

It has been stated that neither an executor nor a trustee has any authority to carry on a business unless explicitly authorized to do so. If it is desired to continue a business owned by the testator, the person who is to run that business should have an adequate compensation specified in the will. If no compensation is so specified, the trustee will receive nothing but his limited percentage on the original investment and the same percentage on all profits he may pay over to the beneficiaries. The courts do not favor the conduct of a business by trustees or executors. If an executor continues a business on his own responsibility he is liable for any loss, must pay over any gains, and can in no event make any profit for himself.

The courts rarely allow any extra compensation above the statutory amount. If the testator imposes extra and unusual duties upon his executors or trustees, he should see that in some way they are paid for what they do.

Under the wording of the New York statute, which gives trustees a commission on "receiving and paying out all sums of principal," the court awards one-half of the commission on receipt of the trust funds.

As the matter is regulated by statute, it would be necessary to consult in such matters the state laws and decisions.

REVIEW QUESTIONS

1. What are the general rules as to the care of trust funds in your state?

2. What are the general rules as to trust investments? 3. What are the general rules for the care of real estate held in trust? What is the rule as to assessments for improvements that increase the permanent value of the property? If a build

ing were burned, how should the insurance be applied? What is the rule in your state as to stock dividends? In case of an income from stocks to be paid a widow and at her death the principal of the stocks to be given to a nephew of the testator, what should the trustee do with a stock dividend of 50 per cent? 4. What should be the relations of the trustee and the beneficiary? Are men and women generally familiar with legal and financial matters?

5. May a trustee conduct a going business? If he is compelled for a time to carry on a business, how may he protect himself? In what cases is a trustee justified in conducting a business?

6. Why should a trustee keep accurate and full records? What accounts must be filed by a testamentary trustee?

7. In your state, what compensation do trustees receive? How should the functions of a trustee be set off from the duties of an executor? Will a trustee be compensated for running a business?