For many people, the incorporation of a trust agreement into their comprehensive estate plan is the key to the plan’s success. During the creation of a trust, the Settlor (creator) of the trust designates a Trustee who is responsible for managing the trust assets and executing the terms of the trust. If you find yourself in the role of a Trustee, it is imperative to try and avoid common pitfalls. To guide you in this endeavor, the Los Angeles attorneys at Schomer Estate & Wealth Advisors discuss trust administration mistakes and how to avoid making them.
Trust Administration Basics
The Settlor is the architect of a trust, defining the parameters that govern its administration and appointing a Trustee to oversee its execution. As a Trustee, you assume a fiduciary role, requiring you to handle trust assets with the utmost care and to always make decisions that are in the best interest of the beneficiaries. Errors during trust administration not only put the success of the trust at risk but can also expose the Trustee to personal liability under some circumstances. To protect both the trust and you as the Trustee of the trust, you need to be able to recognize some of the most common mistakes made during trust administration so that you can avoid making them yourself.
Common Trust Administration Mistakes
Given the complex and consequential nature of the Trustee’s role, seeking guidance from an experienced trust administration attorney is always a prudent choice to make both before you begin and while you are administering a trust. It also helps to know some of the most common mistakes Trustees make during the administration of a trust, such as:
- Going it alone. Although the Settlor of the trust clearly trusts you to administer the trust and protect the trust assets, you are not obligated to do so without professional support. In fact, failing to seek guidance from legal and financial professionals, when necessary, may constitute a breach of duty to the trust and its beneficiaries, potentially exposing you to legal liability.
- Misunderstanding the trust terms. Comprehending the terms of the trust is a foundational duty for a Trustee. This often means you need to read the trust terms several times and consult with an attorney to ensure that you understand each of them. Upholding the trust’s purpose also requires a rudimentary grasp of finance and law and/or consultation with the appropriate legal or financial professional.
- Breaching your fiduciary duty. A Trustee’s legal duty is not limited to adhering to the trust terms. Instead, a Trustee bears a fiduciary duty to the trust and its beneficiaries. In the eyes of the law, a fiduciary duty is the highest duty imposed on someone. This requires you to prudently manage trust assets, steer clear of conflicts of interest, and prevent self-dealing.
- Inadequate or insufficient recordkeeping. During the administration of a trust, rigorous record-keeping is paramount not only to justify your Trustee fees but also in case the trust becomes embroiled in litigation and to ensure compliance with the trust’s tax obligations.
Successfully fulfilling the role of a Trustee requires diligence, comprehension, and a proactive approach to professional assistance. By steering clear of these common mistakes, you can significantly enhance the likelihood of successfully navigating the complexities of trust administration while simultaneously safeguarding the interests of the trust and its beneficiaries.
Do Need Help Assistance Acting as a Trustee during the Administration of a Trust?
For more information, please join us for an upcoming FREE seminar. If you have additional questions or you want help to avoid making mistakes during the administration of a trust, contact the experienced Los Angeles trust administration attorneys at Schomer Estate & Wealth Advisors by calling (310) 337-7696 to schedule an appointment.
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