In a perfect world, the Settlor of a trust would sit down with a potential Trustee and discuss the position to ensure that the individual was comfortable with, and prepared for, the role of Trustee. In the imperfect world that we live in, however, it doesn’t always happen that way. Instead, you may only learn of your appointment as a Trustee after the death of the Settlor. Regardless of how or when you learn that you were appointed as a Trustee, you undoubtedly want to succeed at the position. Toward that end, a Woburn area trust administration attorney at DeBruyckere Law Offices discusses the top five trust administration mistakes to avoid.
- Failing to consult with an attorney. If you have never before served as a Trustee, you will likely have numerous legal questions and concerns as you administer the trust. The role of Trustee is not a role anyone should take on without a legal professional to provide you with advice and guidance, especially if you are acting as a Trustee for the first time. The time and money spent consulting with a trust administration attorney now could save considerably more time and money down the road by eliminating the likelihood of trust litigation. Moreover, a Trustee can be held personally liable for some errors made during the administration of a trust. Working with an attorney dramatically decreases the likelihood of that occurring.
- Misunderstanding a trust term. The very first thing you should do when you learn of your appointment is to read through the entire trust agreement several times. In fact, keep re-reading it until you are sure you understand every If anything is vague or confusing, make a note to discuss it with the attorney. Trust language can be full of legalese, making it particularly difficult for a layperson to understand.
- Creating a conflict of interest. When a Settlor appoints a non-professional as the Trustee of a trust, the potential for a conflict of interest increases significantly. The reason for this is that the Settlor is likely someone close to you if they trusted you enough to make you the Trustee. In turn, there is a good chance you have an existing relationship with at least one beneficiary as well. This can create a conflict of interest if you allow it because you may consciously, or unconsciously, give that person preferential treatment. Make sure that any personal relationship you have with a beneficiary does not in any way interfere with your duties as Trustee. In addition, be careful that your own personal business dealings don’t create a conflict.
- Making risky investments. A Trustee has a fiduciary duty to the beneficiaries of the trust. Among other things, that duty requires you to treat the trust assets with more care than you would your own assets. This duty can be violated by failing to understand and/or use the “prudent investor standard.” That standard requires you to avoid risk when making investments and to always guard the trust principal. Absolutely no risky investments should be made, regardless of the potential gain, with trust assets.
- Committing tax errors. Because a trust is a separate legal, a trust must file a trust tax return each year. If any taxes are due, they must also be paid in a timely manner. To ensure the tax returns are prepared correctly and any tax due has been calculated accurately it is best to hire a certified public accountant (C.P.A.) to help you and to help you keep the detailed financial records required as Trustee as well.
Contact a Woburn Area Attorney to Avoid These Trust Administration Mistakes
For more information, please download our FREE estate planning worksheet. If you have questions or concerns about your role as Trustee during the administration of a trust, contact a Woburn area trust administration attorney at DeBruyckere Law Offices by calling (978) 969-0331 to schedule an appointment. Trust administration mistakes are easy to avoid with the help of an experienced attorney.
How do I know what kind of investments to make?
Usually, the Settlor will provide some guidance within the terms of the trust agreement. You can also look to the general trust purpose, also found in the trust agreement, for guidance.
What is a future beneficiary?
Another mistake Trustees often make is forgetting about future beneficiaries when making trust decisions. Sometimes the terms of a trust dictate that a beneficiary (or group of beneficiaries) do not receive distributions until a later date. These future beneficiaries must also be considered in all trust related business and decisions.
What happens if I don’t want to be the Trustee?
Just because a Settlor appointed you to be the Trustee does not mean you are legally obligated to serve in that role. You can decline, in which case the successor Trustee named in the trust agreement will take over the position.