Testamentary trusts are created through wills. A testamentary trustee's job is to oversee assets for trust beneficiaries. Trustees can generally use a great deal of discretion as they manage trust assets. They can do such things as invest trust funds, buy and sell trust property, and write trust checks. Sometimes they even have discretion to make judgments about what is best for beneficiaries.
Stated Powers
A testamentary trustee must follow the trust's directions down to a "T." Your powers as trustee are limited by the terms of the trust, so don't go off the rails. For example, if a testamentary trust leaves money to pay for Johnny's college education, the trustee can't use it to buy him a Corvette. If you don't understand something in a trust's directions, make a pit stop to a local attorney to answer specific questions.
Discretionary Powers
A testamentary trust can give a trustee some discretionary muscles to flex. Discretionary powers allow a trustee to make judgment calls about how to spend trust money. If a trust broadly states money must be spent for Johnny's care and comfort, the trustee gets to decide what Johnny needs. A trustee should never spend trust assets irresponsibly, but if the trust has big bucks, that fancy car may be in the cards for a beneficiary.
Power and Loyalty
A trustee can't use his power to grease his own palms or help his friends and relatives. He must always put the interests of the trust above his own. A trustee should keep beneficiaries in the loop about trust transactions to avoid the appearance of any funny business. For example, if a trustee wants his attorney brother to do legal work for the trust, he should first clear the arrangement with beneficiaries.
Abusing Powers
A testamentary trustee who misuses her power can land in legal trouble. A judge can order her to pay the trust back any money she causes it to lose. She may be temporarily suspended or get the permanent boot. A court can cut a trustee's fees for her services, order an accounting or undo any agreements the trustee made on behalf of the trust. Trustees should fly right to avoid the hassles of wrangling with lawyers and judges.
References
Writer Bio
Maggie Lourdes is a full-time attorney in southeast Michigan. She teaches law at Cleary University in Ann Arbor and online for National University in San Diego. Her writing has been featured in "Realtor Magazine," the N.Y. State Bar's "Health Law Journal," "Oakland County Legal News," "Michigan Probate & Estate Planning Journal," "Eye Spy Magazine" and "Surplus Today" magazine.