If you have been appointed to be the Trustee of a trust it means that the Grantor (creator of the trust) has an enormous amount of confidence in your abilities to manage the trust assets and honor the trust purpose. Trust administration is a serious responsibility, however, and mistakes can have long-lasting consequences for both the Trustee and the beneficiaries. The Long Island attorneys at Eghrari Law Firm explain seven of the most frequent mistakes that Trustees make during trust administration and how you can avoid making them.
- Failing to Follow the Trust Terms: The first and most important duty of a Trustee is to follow the terms of the trust as long as the terms are not illegal, unconscionable, or impossible. The Grantor created specific instructions in the trust agreement for how the assets should be managed, distributed, and invested and failure to adhere to these instructions can result in legal disputes, financial loss, and personal liability for the Trustee. To avoid making this mistake, thoroughly review the trust document as soon as you assume the role of Trustee and seek legal advice from an estate planning attorney who can help ensure that you understand the trust terms.
- Mismanaging Trust Assets: Trustees have a fiduciary duty to manage the assets in the trust prudently and in the best interests of the beneficiaries and mismanagement of trust assets can lead to significant financial losses and legal consequences. A Trustee should make sound investment decisions and avoid unnecessary risks. To avoid this mistake, it is important to seek professional financial advice from an experienced financial advisor, especially if you are not familiar with investments or asset management.
- Failing to Keep Accurate Records: Trustees are responsible for maintaining detailed and accurate records of all transactions related to the trust, including documents showing income, expenses, distributions, and investment activities. At some point, a court may require you to provide an accounting of your actions as Trustee, making it even more important to keep detailed and comprehensive records from the outset of your trust administration duties by using financial software or hiring a professional accountant to help you manage the trust’s financial records.
- Ignoring Tax Obligations: A trust is a separate legal entity and as such there are tax implications when administering a trust. As the Trustee, you are responsible for ensuring that responsible for ensuring that the trust complies with all federal and state tax laws and failing to do so can result in costly penalties and fines. Consult with a tax professional who specializes in trust taxation to make sure that you understand the tax requirements for the trust and to assist you with preparing and filing the necessary tax documents.
- Delaying Distributions to Beneficiaries: One of the Trustee’s key responsibilities is to make distributions to the beneficiaries according to the terms of the trust; however, some Trustees delay distributions due to poor record-keeping, mismanagement of assets, or a lack of understanding of the trust terms which can result in legal disputes. To avoid this mistake, establish a clear timeline for when distributions should be made and stick to it. Communicate with the beneficiaries to keep them informed of any potential delays and the reasons behind them.
- Failing to Communicate with Beneficiaries: Many Trustees make the mistake of failing to keep beneficiaries informed about the status of the trust, which can lead to misunderstandings and disputes because beneficiaries have a legal right to know how the trust is being managed and when they can expect distributions. Establish open lines of communication with the beneficiaries from the beginning of your job as Trustee to avoid this mistake.
- Neglecting to Seek Professional Help: The most common mistake Trustees make is mistakenly believing they can handle all aspects of trust administration on their own. While some Trustees may have the knowledge and experience to manage a trust without assistance, most individuals will need professional help at some point during the process given the legal, financial, and tax issues involved in trust administration. Failing to seek professional advice when needed can lead to costly mistakes and even personal liability. To avoid this mistake, work closely with an experienced trust administration attorney, financial advisor, and tax professional.
Can We Help You Avoid Making Trust Administration Mistakes?
For more information, please join us for a FREE estate planning seminar. If you are serving as a Trustee and would like assistance to avoid making mistakes during the administration of the trust, contact the Long Island trust administration attorneys at Eghrari Law Firm by calling us at 631-265-0599 to schedule your appointment.
Mark S. Eghrari is an attorney in private practice in Smithtown, New York. He has been in practice since 1988. Mark S. Eghrari provides extensive estate and tax planning services to individuals and businesses. Mr. Eghrari’s primary focus is helping clients avoid probate, minimize or eliminate Federal and State Estate taxes and protect their assets from the high cost of nursing care, if they become ill Read More!
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