What can a Trustee do in Massachusetts?
Trustees in Massachusetts benefit from inherent powers under state law, but articulating these powers clearly within the trust document can significantly enhance flexibility, minimize ambiguity, and reduce administrative costs. By specifying the trustee’s powers, a donor can often eliminate the need for court approval for certain actions, streamlining the trust’s administration. While Massachusetts law provides a broad scope for trustee authority, it is crucial to align these powers with the donor’s intent. This alignment is essential because even the broadest discretionary powers are subject to judicial review, as established in Old Colony Trust Co. v. Silliman, 352 Mass. 6, 10 (1967) (Click Here to Read my Case Summary).
Special care should be taken to match the donor’s (person who creates a trust) intent with the powers enumerated in the trust instrument. This helps to avoid future court action or trustee acts that the donor does not with to permit.
(a) Investment Powers
In Massachusetts, trust investments are generally governed by the Massachusetts Prudent Investor Act (G.L. c. 203C). According to Section 3(a), “A trustee shall invest and manage trust assets as a prudent investor would, considering the purposes, terms and other circumstances of the trust. . . . In satisfying this standard, the trustee shall exercise reasonable care, skill and caution.” Section 2(b) further clarifies that “[t]he prudent investor rule may be expanded, restricted, eliminated or otherwise altered by the provisions of a trust. A trustee shall not be liable to a beneficiary to the extent that the trustee acted in reasonable reliance on the provisions of the trust.” Although the Prudent Investor Act is comprehensive, including broad investment powers in the trust document is advisable to address diversification and asset selection challenges.
(b) Diversification
Trustees are generally required to promptly dispose of unsuitable investments and diversify trust assets in accordance with the Prudent Investor Act (G.L. c. 203C, § 4). This duty encompasses diversification strategies to mitigate risk. A trustee may benefit from having the discretion to opt out of this duty in specific cases, such as with closely held stock or low basis assets.
(c) Portfolio Management
The Prudent Investor Act emphasizes that “[a] trustee’s investment and management decisions respecting individual assets shall be considered in the context of the trust portfolio as a part of an overall investment strategy reasonably suited to the trust.” Massachusetts law does not disallow any particular investment per se. Chase v. Pevear, 383 Mass. 350, 362–63 (1981). Granting trustees broad investment powers can alleviate concerns regarding the permissibility of investments. However, some donors might prefer to limit trustee discretion. To address potential future changes in circumstances, broad discretion is generally advisable. If the trust includes large blocks of publicly traded stock that the donor wishes to retain, the trust document should authorize the trustee to do so, thus defending against claims of under-diversification.
(d) Management of Illiquid Assets
Trustees are tasked with making trust property productive. For closely held stock or non-income-producing property, specific language in the trust document should authorize the trustee to retain such investments. Additionally, incorporating special powers for managing closely held stock as an individual can be beneficial.
(e) Leasing Powers
A trustee’s duty to make trust property productive implicitly includes the power to lease. Section 816(9) of the Massachusetts Uniform Trust Code (MUTC) grants trustees the authority to enter into leases for any purpose, whether as lessor or lessee, for periods within or extending beyond the trust’s duration.
(f) Allocation Between Income and Principal
A provision that allows a trustee to allocate items between income and principal is crucial for resolving uncertainties regarding the categorization of receipts and expenses. The Massachusetts Principal and Income Act (G.L. c. 203D) provides detailed guidelines, but these apply only if the trust document lacks specific instructions. Therefore, incorporating a provision for reasonable allocation is highly recommended, ensuring it overrides statutory apportionment rules. The trustee remains bound by the duty of impartiality between income and remainder beneficiaries. Without such a provision, a trustee’s allocation decisions, even if made in good faith, could be considered a breach of trust. Old Colony Trust Co. v. Silliman, 352 Mass. 6, 10 (1967).
(g) Borrowing Powers
Massachusetts law allows trustees to borrow money, with or without security, and mortgage or pledge trust property unless the trust document specifies otherwise. Section 816(5) of the MUTC. A broad borrowing power is generally desirable to accommodate various financial needs.
(h) Lending Powers
Although trust loans should be rare, the power to lend to beneficiaries can be useful in specific situations. Section 816(18) of the MUTC permits trustees to make loans from trust property, including loans to beneficiaries, under terms the trustee deems fair and reasonable. Trustees also have a lien on future distributions for loan repayment.
(i) Distributing to Minors
Without explicit authorization, trustees should avoid distributing property directly to minors or on their behalf. Under G.L. c. 201A, § 6(a), trustees may distribute up to $10,000 to a custodian for a minor under the Uniform Transfers to Minors Act (UTMA) without court approval. For broader flexibility, the trust should include provisions for distributing to a range of individuals or entities responsible for the minor’s care. Section 816(21) of the MUTC allows distribution to a minor’s custodian or an adult relative if no guardian or custodian is known.
(j) Power to Terminate a Trust
Absent a specific termination power, trustees cannot unilaterally terminate a trust whose purposes have not been fulfilled. Without such a provision, the trustee might need to petition the probate court for authority to terminate a trust deemed uneconomical to administer (Section 412 of the MUTC). However, a trust holding less than $200,000 can be terminated upon notice to the qualified beneficiaries without court intervention (Section 414 of the MUTC).
(k) Power of Sale
A trust instrument should ideally grant a broad power of sale. Sections 815 and 816 of the MUTC provide trustees with extensive powers, including the authority to sell trust assets broadly.
(l) Power to Resign
According to Section 705 of the MUTC, trustees may resign with at least thirty days’ notice to the settlor and all cotrustees for revocable trusts, or to the qualified beneficiaries and all cotrustees for other trusts. Including a resignation clause in every trust instrument is still advisable.
(m) Statutory Optional Fiduciary Powers
Trustees may incorporate a statutory list of fiduciary powers by reference into the trust. Section 816 of the MUTC includes an extensive list of twenty-seven enumerated powers. However, incorporating these powers by reference is rare because it may necessitate consulting multiple documents and revisiting older statutes. Most attorneys prefer to include all pertinent powers, duties, and terms directly in the trust document for clarity and ease of use.
