Although a Last Will and Testament remains the most common method of distributing estate assets after death, many people choose to use a trust in lieu of, or in addition to, a Will to protect and eventually distribute assets. When a trust is used, the Settlor (creator) of the trust must appoint someone to be the Trustee of the trust. If you find yourself in the position of Trustee for the first time, you may feel a bit intimidated at the prospect of the responsibility thrust upon you. To help you avoid making costly errors, the Tucson trust administration attorneys at Morris Hall PLLC discuss some of the most common trust administration mistakes.
What Is Your Job as a Trustee?
All too often, first-time Settlors appoint someone as the Trustee of a trust without knowing what the duties and responsibilities of a Trustee are. As a result, many spouses, parents, and adult children end up as Trustees without knowing anything about the job. If you have never served as a Trustee, a good place to start is to learn some of the basic duties and responsibilities you will have as a Trustee, such as:
- Managing and protecting trust assets
- Abiding by the trust terms unless they are impossible, illegal, or unconscionable
- Investing trust funds using the “Prudent Investor Standard”
- Monitoring trust investments
- Communicating with trust beneficiaries
- Resolving conflicts among beneficiaries
- Making discretionary decisions
- Distributing trust funds to beneficiaries
- Approving or denying distributions if given discretionary authority
- Keeping detailed trust records
- Preparing and paying trust taxes
Tucson Trust Administrations Mistakes to Avoid
Despite the best of intentions, it can be very easy to make costly mistakes during the administration of a trust, particularly if it is your first time serving as Trustee. Knowing what to watch out for may help you avoid making one of these mistakes. Toward that end, the following are some common trust administration mistakes you should try and avoid making:
- Violating Fiduciary Duties – as the Trustee of the trust you have a fiduciary duty to the beneficiaries of the trust. In essence, this means that you must put their best interests first when making decisions related to the trust assets. Not only is it a violation of your duties as a Trustee to do otherwise, but a violation of your fiduciary duty can even lead to legal action against you that could lead to being held personally liable.
- Creating a Conflict of Interest – one reason it is often best to appoint a professional Trustee is that it dramatically reduces the possibility of a conflict of interest. If, however, the settlor of your trust did not go that route, it likely means that you are personally acquainted with the beneficiaries of the trust. Make sure you do not create a conflict of interest because of those relationships. Keep your job as a Trustee separate from your personal relationships with the beneficiaries.
- Failing to Keep Adequate Records – a Trustee is required to keep very detailed and thorough records of all trust business. One common mistake is for a Trustee to not take this requirement seriously because the trust is rather informal. You never know, however, when a trust might be involved in litigation which is why it is so important to keep records.
- Not Retaining the Services of an Attorney – administering a trust often involves complex legal and financial concepts with which the average person is not familiar. For this reason alone, it is always wise to retain the services of an experienced trust administration attorney if you have been appointed the Trustee of a trust. Not only is it best for the beneficiaries of the trust, but it is also best for you as the Trustee because you could be held personally liable for mistakes you make if you forego the assistance of an attorney.
- Failing to Clarify Compensation – the Trustee of a trust often puts in a considerable amount of time working on trust duties. It only makes sense then that the Trustee is entitled to compensation for that time. Sometimes, however, a Trustee is reluctant to bring up the issue of compensation because he/she has a personal relationship with the Settlor and/or the beneficiaries of the trust. Failing to clarify the issue of compensation in the beginning though is likely to lead to a much bigger problem down the road.
Contact a Tucson Trust Administrations Attorney
If you have additional questions or concerns about administering a trust, contact the experienced Tucson trust administration lawyers at Morris Hall PLLC by calling 888-222-1328 to schedule your free consultation today.