Being a trustee for a loved one’s estate is a very important job with serious responsibility. The role of trustee is an essential element of successful trust administration. The trustee is responsible for guaranteeing that the provisions of the trust document are followed. A trustee is ultimately responsible for managing the trust property and keeping accurate records of all transactions. Because this is such an awesome responsibility, we want to share these tips for trustees.
Be sure to honor your fiduciary duty
Trustees must always manage the trust and trust property with only the best interest of the beneficiaries in mind. Trustees are also subject to certain regulations, such as the Uniform Prudent Investor Act, a law designed to protect beneficiaries from improper investment choices. What this means for you, as a trustee, is that you can be held liable for investment losses or missed opportunities and profits that beneficiaries could have received if you had been more prudent in making investment choices.
Seek professional assistance if you feel you are in over your head
Considering the substantial responsibility placed on trustees, it would certainly be wise to seek assistance from an experienced and qualified trust administration attorney. You may also need the assistance of a professional financial adviser to assist with management of investments. Investment management is the most litigated issue in trust administration. If disputes arise and beneficiaries file suit, the process can be very lengthy and expensive. That means a substantial amount of trust assets and trustee time may be spent on legal proceedings.
You must at all times be a neutral party in every transaction
As the fiduciary duty requires, a trustee must be able to look past his or her own interests and comply with the terms of the trust document in making all decisions. This may not be as easy as it seems, especially if you are related to a beneficiary of the trust, or if you have an emotional bond with the family in general. A trustee must remain a neutral party at all times and in all transactions.
Be prepared to provide a complete reporting of your actions as trustee
The fiduciary duty of a trustee brings with it the need to provide complete and accurate reporting of all transactions involving the trust property. According to some reports, there has been a substantial increase in the number of lawsuits involving trusts. For this reason, it is crucial that a trustee first be aware of the breadth of his responsibilities, and understand the risk for liability.
A trustee is not only required to make proper investments and manage trust assets but also to prepare tax returns for the trust and accountings for the beneficiaries. Every decision made related to the trust property must be documented, especially decisions to approve or deny any distributions. That way, if any disputes arise, you will be prepared to defend your decisions and protect yourself from personal liability.
Remember to address compensation for your services as trustee
Trustees are generally entitled to a reasonable fee for their services. What constitutes a reasonable fee usually differs from one state to the next and on the expertise of the trustee. Whether a particular trustee will even request a fee may depend on their relationship to the grantor and terms of the trust. The risk of not discussing fees upfront is that years later when the issue of compensation comes up, they may have to go to court to get the issue resolved. In some cases, a trustee will serve for several years without being paid, then later when the time and effort required to fulfill the duties increases, the trustee will seek compensation. If the fee was not discussed ahead of time, there may be some issues with the beneficiaries requiring court intervention to resolve.
Consult with a trust administration attorney, especially if trust litigation is likely
There are many different situations in which a Trustee may find himself or herself in court on behalf of a trust or estate. It could be that the trustee must initiate the lawsuit based on the wrongdoing or negligence of someone else. On the other hand, a trustee may be required to represent the trust or estate in defense of a claim brought against it by another party.
If you have questions regarding trusts, trust administration, or any other estate planning matters, please contact us at the Northern California Center for Estate Planning and Elder Law for a consultation. You can contact us either online or by calling us at (916) 437-3500. We are here to help!