Since a trustee’s duties and powers are interrelated, the scope of a trustee’s powers depends on the extent of his or her duties. A trustee’s privileged powers are those he or she can exercise without violating a duty to the beneficiaries. A combination of state law and trust provisions grant powers to the trustee. Although a power may not be specifically granted, it may be implied from the trust terms. As the grantor, you can expressly confer a power through a provision in the trust agreement. Likewise, you can prohibit a trustee from exercising a specific power.
Power to incur expenses
A trustee may incur expenses that are reasonable, necessary, and appropriate to preserve trust assets.
Power of sale
A trustee may sell trust assets to pay debts, administration expenses, and taxes. The terms of the trust dictate the scope of this power. For example, salable assets may include real estate unless the trust agreement prevents it. If the terms of the trust were unclear, or if a required sale of assets would defeat or hamper the trust’s objectives, the trustee must obtain court approval to deviate from the terms of the trust.
Power to mortgage or lease
A trustee may mortgage trust property or pledge it as collateral for a loan if a statute or the terms of the trust specifically allows it. Otherwise, the trustee may not mortgage or pledge the property since this could result in its loss.
A trustee, however, usually may lease trust property unless the trust agreement specifically forbids it. This is because the trustee has a duty to make the property productive. If the trust contains land, the principal way of making land productive is by leasing it.
Power to continue a business
A court may allow a trustee to operate a business if its sale would cause a loss to the trust. Under some circumstances, a trustee may continue business operations for a brief period of time without court approval in order to sell the business as a going concern.
Otherwise, a trustee may not carry on the operations of an active business unless the trust agreement specifically allows it. In fact, the trustee has a duty to dispose of the business and invest the proceeds in appropriate investments.