The Trustee's

Delegation Power

When choosing a trustee, it is important to select an individual who will use good judgment and discretion to administer and manage the trust. The basic duties of the trustee include keeping accurate record, making payments, securing assets, filing tax returns, and defending the trust, among others. In addition to these functions, the trustee has fiduciary duties to administer the trust solely for the benefit of the beneficiaries and to treat each beneficiary fairly and impartially.

The trustee is given the discretion to perform certain duties on his own or to engage agents to carry out trust functions. The trustee has a duty not to delegate responsibilities to other parties that he could reasonably be expected to perform. However, the trustee may delegate actions where warranted under the circumstances. For example, the trustee is obligated to ensure that the trust remains productive by investing assets in income-producing ventures in a timely manner. If the trustee does not have the skill or knowledge to choose investment strategies, he may choose to delegate investment decision powers to a financial adviser. Similarly, the trustee is required to handle all tax-related matters and may elect to hire an accountant to file returns and manage the trust’s tax liabilities. The trustee is obligated to demonstrate care and prudence in selecting agents for these duties. Once the trustee delegates duties, what is his obligation to oversee such activities and what is his liability for the actions of the agents?

Under the law in California, the trustee is required to clearly set forth the conditions and scope of the delegation in accordance with the terms of the trust. The trustee must regularly communicate with third party professionals and review the relevant statements and accounts handled and prepared by them.  In addition, the trustee is responsible for making all decisions regarding distributions of principal or distributions to one or more beneficiaries regardless of the delegation.

If the trustee complies with the requirements of ensuring that agents are performing their duties in accordance with the trust and monitoring the agents’ activities, then the trustee is free from liability to the trust or the beneficiaries for any wrongful actions performed by the agents.    

Choosing Between a

S-Corp and a LLC

When it is time to choose a structure for your business, there are a number of important factors to consider. For small businesses, a limited liability company (LLC) or S Corporation (S Corp) may be the optimal structure for several reasons. In an LLC and S Corp, all losses and profits “pass through” to the members or shareholders, which allows these businesses to avoid the burden of double taxation. Moreover, in both these structures, the owners are not liable for the debts incurred by the business entity. However, there are important distinctions between LLCs and S Corps that may be instrumental in helping you select the ideal form for your business needs.

Corporate formalities. An S Corp, like a C Corp, must comply with various formalities for organizing and maintaining its business. These requirements include making filings, maintaining records, appointing a board of directors, conducting meetings, and complying with regulatory requirements. While the S Corp structure mandates a significant degree of corporate compliance and oversight, an LLC is devoid of similar regulations. An LLC merely requires an operating agreement to be executed by its members. For a small business or a solo venture, the degree of governance required in an S Corp structure may be prohibitive.

Flexibility in distributing income. An LLC is governed by an operating agreement, which is an informal document that allows for considerable discretion in managing the business. One of the areas in which LLC members are granted significant flexibility is profit allocation. Thus, income and losses can be distributed in any way that the members agree upon regardless of the proportionality of the members’ interest in the LLC. In contrast, income and loss is allocated in an S Corp based on the shareholder’s ownership interest. An S Corp does not allow an alternative method for income allocation.

Restrictions on shareholders. While an LLC does not restrict who can become a member, an S Corp has certain prohibitions regarding shareholder identity. The shareholders of an S Corp must be U.S. citizens or permanent residents. In addition, there can be no more than 100 shareholders of the corporation.