Real estate held in trust has title in the trust name. The management of the real estate is the responsibility of the trustee, which includes collecting rent, paying taxes, making repairs and ensuring that the real estate is properly insured.
A trustee has a fiduciary duty regarding rental real property in trust. Fair market rents must be charged and collected, and a trustee is in breach of fiduciary duty if he does not fulfill this obligation. For example, the New York State Supreme Court Appellate Division ruled in the Matter of Estate Silverstein vs. Goodman that trustees had breached the fiduciary duty of loyalty to the trust by allowing family members to live in trust-owned property at no rent or rents that were below fair market value.
Use of Trust Owned Property
One of the most basic tenets of fiduciary duty is to protect trust assets. Since family members or trust beneficiaries cannot use trust-owned property as a personal asset and live in trust rental property rent-free, they also cannot be involved in rent collection. Family members or trust beneficiaries cannot assume the trustee’s duty in this regard.
Delegation of Responsibility
The trustee cannot delegate the duty to collect rent to a trust beneficiary or any party that has a beneficial interest in the trust because it is a conflict of interest. Most state statutes do allow trustees to delegate certain duties, and in the case of rental property, the trustee can hire a professional property manager to manage the property and collect the rents. Hiring a professional property manager is an arms-length transaction that does have any conflict of interest, and does not violate the trustee’s fiduciary duty.
Ask for Advice if Unsure
If a trust interested party is unsure of any duties, rights, or responsibilities pertaining to trust owned real estate, the first place to look for answers is the trust agreement. If the trust agreement does not clearly define the duty in question, then state statues and common law are the next course of review for answers. Since trust issues can become quite complicated, it is always a prudent course of action to seek advice from a trust attorney licensed to practice in the trust state.
Mary Frazier began writing in 2011 for various websites and has over 20 years of experience as a bank vice president and senior trust officer. Frazier is a Certified Trust and Financial Advisor, holds a Bachelor of Arts in economics from the University of North Florida and holds a Master of Science in finance from the College for Financial Planning.