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Can I Be Held Liable for a Mistake Made While Administering a Trust?

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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. An Essex Junction attorney at Unsworth LaPlante, PLLC explains when a Trustee might be personally liable for actions taken while administering a trust.

What Does a Trustee Do While Administering 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 Grantor (the creator of the trust). The specific duties and responsibilities of a Trustee are extensive and include everything from investing the trust assets to resolving conflicts among beneficiaries.

When Can a Trustee Face Personal Liability for Mistakes?

All too often a spouse, best friend, or family member ends up in the position of Trustee despite having the experience and skills that would qualify them 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, skills, or education increases the likelihood of making mistakes during the administration of the trust. Not all mistakes lead to a Trustee facing personal liability, but it can happen. 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 a debt incurred in the name of the trust that is 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 incurs 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

What Can I Do to Avoid 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.

Do You Need Help to Avoid Being Held Liable for Mistakes Made While Administering a Trust?

For more information, please attend one of our upcoming FREE webinars. If you need help to avoid being held personally liable for mistakes made while administering a trust to prevent facing personal liability, contact the experienced Essex Junction trust attorneys at Unsworth LaPlante, PLLC by calling 802-879-7133 to schedule your appointment today.

Wendy S. Hillmuth
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