How trustees delegate work and oversee advisors
Key takeaway
In Minnesota, for example, trustees may delegate duties a prudent trustee of comparable skills could properly delegate under the circumstances. They must exercise reasonable care, skill and caution in selecting agents, defining assignments and reviewing performance, and must enforce the agent's duty to comply. Other states differ.
Research notice: Based on primary sources linked below. Read each state example with its complete conditions and exceptions. Ask an estate attorney to review the governing instrument, applicable law and proposed delegation before signing an engagement or relying on liability protection.
Questions to prepare for counsel
Bring the trust instrument and proposed engagement to counsel. Use these questions to organize the discussion:
- What information should counsel review about the proposed agent and the selection decision?
- How does the proposed assignment describe its scope and terms?
- What performance and compliance information should be included in the review discussion?
- Does the proposal include affiliation, arbitration or action period language that needs specific attention?
For a comparison of family and professional trustees, follow the trustee selection guide in Related reading.
Selection, assignment terms and periodic review
The delegation provisions discussed here for Virginia, Vermont, Wisconsin, Utah, Pennsylvania and Texas require reasonable care, skill and caution in three tasks:
- Selecting the agent.
- Establishing the delegation's scope and terms.
- Periodically reviewing the agent's actions to monitor performance and compliance with the delegation.
Virginia, Vermont, Wisconsin and Texas require assignment terms consistent with the trust's purposes and terms. Utah specifies consistency with the trust's purposes. Pennsylvania requires scope and specific terms consistent with the trust's purposes and provisions, and review against that scope and those specific terms.
In Virginia, Vermont, Wisconsin, Utah and Texas, the agent owes a duty to the trust to exercise reasonable care in complying with the delegation's terms. Pennsylvania's additional agent duties appear below.
These requirements operate within each state's permitted assignments and liability conditions. Read the applicable state discussion with this standard. Other states differ.
Virginia and Vermont: permitted assignments and liability protection
Virginia permits delegation of investment and management functions that a prudent trustee of comparable skills could properly delegate under the circumstances. Vermont permits delegation of duties and powers under that same prudence threshold.
In each state, compliance with the selection, assignment and review requirements above protects the trustee from liability to beneficiaries or the trust for the agent's decisions or actions.
Accepting delegation from a trust subject to Virginia law submits the agent to Virginia court jurisdiction. Accepting delegation from a trust subject to Vermont law submits the agent to Vermont court jurisdiction. Other states differ.
Delaware identifies retained fiduciary responsibilities
In Delaware, delegating investment, management or other fiduciary duties to an agent does not itself end the delegating fiduciary's fiduciary status or make the agent a fiduciary. That provision addresses delegation itself and does not determine the agent's status under other law. Other states differ.
The Delaware payment answer explains appointment, compensation and the responsibilities retained in a discretionary agency arrangement. Bring the hiring terms, compensation terms and oversight provisions to counsel together.
Nevada retains liability despite investment delegation
In Nevada, a fiduciary may delegate investment authority without thereby being relieved of liability existing without delegation. The statutory powers are subject to the instrument and tax limits below.
Unless the testator or settlor expressly provides otherwise, Nevada incorporates the enumerated statutory powers into the will or trust instrument for the appointed fiduciaries. The applicable powers are those existing when the testator signs the will or the first settlor signs the trust instrument, including electronic signatures. These powers supplement common law and statutory powers.
A fiduciary may not have or exercise these powers in a manner that, in the aggregate, deprives the trust or estate of an otherwise available tax exemption, deduction or credit, expressly including the marital deduction.
Nor may their exercise impose tax on a donor, testator or other person as owner of any portion of the trust or estate. A purported power is void if having or exercising it would defeat the intended tax consequences. Other states differ.
The Nevada specialist payment answer addresses employment and compensation under those same limits. Discuss investment delegation and specialist employment separately with Nevada counsel.
Wisconsin separates general delegation from investment delegation
Wisconsin's general delegation provision permits delegation of duties and powers that a prudent trustee of comparable skills could properly delegate under the circumstances. It expressly excludes investment and management functions, which are governed by a separate statutory provision.
Under the general provision, compliance with the selection, assignment and review requirements above protects the trustee from liability to beneficiaries or the trust for an action of the agent.
Accepting delegated powers or duties from a trust subject to Wisconsin law submits the agent to Wisconsin court jurisdiction, even if the delegation specifies a different jurisdiction or venue. Other states differ.
Ask Wisconsin counsel about the applicable investment delegation provision. Follow the Wisconsin guide in Related reading for broader trustee questions.
Utah and Pennsylvania: liability conditions and agent duties
Utah permits delegation of investment and management functions that a prudent trustee of comparable skills could properly delegate under the circumstances. Compliance with the selection, assignment and review requirements above protects the trustee from liability to beneficiaries or the trust for the agent's decisions or actions. Other states differ.
Pennsylvania permits delegation of duties and powers that a prudent trustee of comparable skills might delegate under the circumstances. Compliance with the requirements above protects the trustee from liability to beneficiaries or the trust for an action of the agent.
The Pennsylvania agent must comply with the delegation's scope and terms and exercise the delegated duties and powers with reasonable care, skill and caution. An agent who represents having special skills or expertise must use them. The agent is liable to the trust for failing these duties.
Accepting delegated duties or powers from a trustee subject to a Pennsylvania court's jurisdiction submits the agent to that court, even if the delegation specifies a different jurisdiction or venue. Other states differ.
Pennsylvania separately permits delegation to another trustee if the delegating trustee reasonably believes the receiving trustee has greater skills for the particular duties and powers. The receiving trustee must accept the delegation.
Protection from responsibility for the receiving trustee's decisions, actions or inactions requires reasonable care, skill and caution in establishing the delegation's scope and specific terms. The same standard applies to periodically reviewing the receiving trustee's performance and compliance with that scope and those terms. Other states differ.
For a Pennsylvania proposal, identify whether the recipient is an agent or another trustee before discussing the applicable delegation provision. Bring any representations about special skills or expertise to the engagement review.
Texas adds exceptions to delegation protection
Texas permits delegation of investment and management functions that a prudent trustee of comparable skills could properly delegate under the circumstances. Protection from liability to beneficiaries or the trust for the agent's decisions or actions requires compliance with the selection, assignment and review requirements above, subject to these exceptions:
- The agent is an affiliate of the trustee.
- The delegation requires the trustee or a beneficiary to arbitrate disputes with the agent.
- The delegation shortens the period for a trustee or beneficiary to bring an action concerning the agent's actions, compared with the period applicable to trustees under Texas law.
These exceptions make the statutory protection unavailable. They do not themselves establish breach or damages.
Texas permits trust provisions to expand, restrict, eliminate or otherwise alter the default prudent investor rule. A trustee is not liable to a beneficiary to the extent the trustee acted in reasonable reliance on those provisions.
Accepting delegation from a trust subject to Texas law submits the agent to Texas court jurisdiction. Other states differ.
Ask Texas counsel to review the complete engagement using the preparation questions above.
Common questions
May a Delaware fiduciary pay an agent from the fiduciary fund?
Yes, a Delaware fiduciary may appoint agents, including cofiduciaries, pay them from the fiduciary fund and delegate investment, management or other fiduciary duties.
When the appointment is discretionary and is not at an adviser's direction, the fiduciary's own applicable standard of care continues for selecting and hiring the agent and paying the agent from the fiduciary fund.
That standard also continues for establishing the agency's scope and specific terms, overseeing the agent's actions and continuing the relationship. The fiduciary is otherwise not liable for the agent's conduct.
The rule applies even if combined agent and fiduciary compensation exceeds the fiduciary's otherwise payable compensation. It also applies if the agent's standard of care is lower than the fiduciary's standard for personally performing the work. Other states differ.
Use the Delaware discussion when preparing questions about the proposed agency arrangement and fiduciary status.
May a Nevada fiduciary pay specialists from income or principal?
Yes, subject to the Nevada instrument and tax limits above, a fiduciary may pay needed specialists from income, principal or both in proportions the fiduciary considers advisable.
The employment authority covers persons the fiduciary deems needed to advise or assist in proper estate settlement or trust administration, including accountants, attorneys, investment brokers, appraisers and tax specialists.
Protection against a specialist's neglect, omission, misconduct or default requires due care in both selection and retention. Other states differ.
Take the proposed engagement and payment arrangement to Nevada counsel for review under those limits.
Must a Minnesota trustee monitor a delegated agent?
Yes, in Minnesota, for example, a trustee must periodically review the agent's actions with reasonable care, skill and caution to monitor performance and compliance with the delegation's terms.
The selection and assignment duties described in the lead include establishing scope and terms consistent with the trust's purposes and terms. The trustee must enforce the agent's duty to exercise reasonable care in complying with the delegation's terms. Other states differ.
Bring the proposed assignment and reporting arrangements to counsel, using the preparation questions above.
Resources to check out
- Minnesota: delegation by trustee: Read the provision underlying the Minnesota example.
- Virginia: delegation of investment and management functions: Review the investment and management delegation provision with the proposed engagement.
- Delaware: fiduciary agency contracts and delegation: Read the provision underlying the Delaware discussion and payment answer.
- Texas: Uniform Prudent Investor Act: Review the provisions underlying the Texas example.