If you recently learned that someone appointed you to be a Trustee of a trust, you probably have some questions if this is the first time you have acted as a Trustee. Many of these questions will be related to the duties and responsibilities of a Trustee. Before you agree to accept the appointment, however, your most important concern may be whether you could be held personally liable if you make a mistake. To help you better understand what it means to be a Trustee, a Los Angeles trust administration attorney at Schomer Law Group, APC discusses when and why a Trustee could face personal liability for mistakes made while administering a trust.
What Does the Trustee Do during the Administration of a Trust?
People frequently appoint the wrong person as their Trustee when they create a trust because they do not understand the breadth and complexity of the duties and responsibilities of a Trustee. The overall job of a Trustee is to protect and manage trust assets while administering the trust using the trust terms created by the Settlor. The specific duties and responsibilities of a Trustee makes for a long list. This list includes everything from investing trust assets to keeping detailed records to resolving conflicts among beneficiaries.
When Can a Trustee Be Held Liable for Mistakes?
All too often a spouse, best friend, or family member ends up in the position of Trustee despite a lack of experience/education that would qualify him/her to be the Trustee. Successfully administering a trust is best accomplished by someone with a financial and/or legal background. A Trustee’s lack of experience and/or education increases the likelihood of making mistakes during the administration of the trust. Not all mistakes lead to a Trustee being held personally responsible; however, some do. The exact facts and circumstances that led up to the mistake will be considered when determining if the Trustee is held personally liable. It helps, however, to know what might lead to personal liability.
If a Trustee does make a mistake during the administration of a trust it could result in liability to a third party and/or to the beneficiaries of the trust. As the Trustee, you will have to interact with third parties on a regular basis, particularly about investments made by the trust. Consequently, you could end up liable for breaching a contract to a third party or for debts incurred in the name of the trust that are owed to a third party. You might also find yourself liable to the beneficiaries of the trust for a wide range of errors or mistakes, including:
- Failing to distribute trust assets according to the terms of the trust.
- Failing to pay debts, including taxes, owed by the trust that then incur additional fines that decrease the value of the trust assets
- Making risky investments that result in a depletion of trust assets
- Failing to inform the beneficiaries of vital trust business that results in damage to the trust.
- Creating a conflict of interest that results in losses to the trust
- Self-dealing
Preventing Personal Liability
There are several things you can do to try and limit the possibility of personal liability for mistakes. For example, when any Trustee invests trust assets, the “prudent investor standard” must be used. The prudent investor standard requires the Trustee to only invest in risk averse options and to consider retention of the principal to be the most important consideration when making investments. The most important thing you can do, however, to try and avoid personal liability is to utilize the advice and assistance of professionals during your time as Trustee. Consult with a financial advisor before making any investments using trust assets. In addition, retaining the services of a trust administration attorney will dramatically decrease the likelihood of any personal liability on your part because it will decrease the likelihood of making mistakes.
Contact a Los Angeles Trust Administration Attorney
For more information, please join us for an upcoming FREE seminar. If you have additional questions or concerns about trust administration, contact an experienced Los Angeles trust administration attorney at Schomer Law Group APCby calling (310) 337-7696 to schedule an appointment.
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