Being appointed as a trustee of a trust is a huge responsibility that many people don’t completely understand. As a result, they sometimes make mistakes that cause hard feelings between family members, loss of trust assets, and liability of the trustee. If you are appointed a trustee, you need to learn common mistakes to avoid, so you fulfill the duties you have under the law to the trust and its beneficiaries.
Common Mistakes to Avoid When Administering a Trust
A competent trustee is crucial to the correct administration of a trust. Trustees must administer the trust property, distribute it according to the terms of the trust, and keep accurate financial records showing all transactions regarding the property of the trust. Common mistakes you want to avoid when fulfilling your duties include:
- Breaching your fiduciary duty. As a trustee, you have a fiduciary duty to look out for the beneficiaries’ interests and comply with regulations such as the Prudent Investor Act when making investments. If you breach this duty and the estate loses money or assets, you could face liability to the trust for these losses.
- Not remaining neutral. In your role as trustee, you must remain neutral and look out for the interests of the trust and its beneficiaries, not your own interests. This can be especially challenging when you are a beneficiary of the trust, as well as, the trustee.
- Not discussing fees. You could be entitled to charge fees to the trust for your administration of its assets. If you plan to charge fees, you need to communicate these fees to beneficiaries early on in the trust administration to avoid disputes and hard feelings regarding these expenses.
- Not keeping good records. Keeping accurate records of all transactions of the estate is one of your important jobs, and you will need to share your accounting with beneficiaries at certain times in your administration of the estate. If your record keeping is inaccurate or sloppy, you may be faced with a lawsuit that claims you breached your duty and lost assets of the trust.
- Failing to communicate with the financial team. If you fail to communicate with financial advisors, attorneys, and others involved in your duties to the trust, you could have misunderstandings or make mistakes that could cost the trust money and expose you to personal liability.
Are you the trustee of a trust? It is important that you understand your duties, steps you should take in administering the trust, and mistakes to avoid. You need an experienced asset protection attorney to guide you through this process. To learn more, call our office to schedule a free consultation.