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Common Trust Administration Mistakes

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Though once used almost exclusively by aristocrats as a way to preserve family wealth, trusts are now found in the estate plans of the average person. Trusts have also evolved to accommodate a wide range of estate planning goals, offering a specialized trust to fulfill almost any purpose. One thing that all trusts have in common, however, is the need to appoint a Trustee to oversee the administration of the trust. If you recently learned that you were appointed to be the Trustee of a trust, you may have questions and concerns about fulfilling your appointed role. To help you succeed as a Trustee, the Essex Junction attorneys at Unsworth LaPlante, PLLC explain some common trust administration mistakes.

  • Not understanding the trust terms: A trust is governed by a trust agreement which is created by the Grantor (the person creating the trust), also referred to as a “Settlor” or “Trustor.” The trust terms provide guidance on everything from investing trust assets to how and when to distribute those assets to the named beneficiaries. As the Trustee, you must have a clear understanding of the trust terms and the trust purpose, as stated in the trust agreement. To make sure you understand the terms, go over them with an experienced estate planning attorney and turn to your attorney for advice and guidance if a term is unclear.
  • Mismanaging trust assets: As a Trustee, you are in a fiduciary role, meaning you have a legal obligation to manage trust assets prudently and in accordance with the terms of the trust agreement. You must use diligence, care, and skill in managing investments. Furthermore, you should avoid unnecessary risks and take steps to mitigate potential losses. Doing things such as engaging in self-dealing, making risky investments, or neglecting investments can leave you open to personal liability for losses suffered by the trust.
  • Not distributing assets according to the trust terms: You are legally obligated to distribute the trust assets to the beneficiaries exactly according to the terms of the trust agreement. Withholding assets or delaying distributions can be a violation of your fiduciary duty. If, however, you have discretionary powers, meaning you can decide whether to distribute assets, consult with an estate planning attorney if you are unsure whether to make a distribution.
  • Failing to keep sufficient records: As the Trustee, you need to keep accurate and thorough records of all trust-related transactions, including income, expenses, distributions, investments, and communications with beneficiaries or other parties involved. Not only will you need those records for tax purposes and potentially for litigation, but you will also need them to justify your fee. A Trustee is entitled to a fee for his/her services; however, it must be a reasonable fee.
  • Lack of communication with beneficiaries: To successfully administer a trust, the Trustee should have open and transparent communication with beneficiaries. You should update beneficiaries on a regular basis about trust business, including the financial health of the trust. You should also be sure to respond in a timely manner to questions or concerns expressed by a beneficiary.
  • Failing to file and pay taxes: A trust is a separate legal entity, meaning that a trust may have to pay income taxes, estate taxes, and gift taxes, depending on the type of trust and its assets. As the Trustee, it is your responsibility to know what taxes are due, calculate those taxes, prepare and file tax returns, and ensure that the taxes due are paid. Consult with a tax professional to ensure that all taxes due are filed and paid to avoid personal liability.
  • Trying to administer the trust without professional help: Trust administration typically involves legal, financial, or tax matters – all of which can be complicated. As the Trustee, you have a fiduciary duty to act prudently and in the best interests of the beneficiaries, which often requires specialized knowledge and expertise. Consulting with experienced professionals, such as an estate planning attorney, financial advisor, and/or tax specialists, can provide you with invaluable guidance and ensure compliance with legal and regulatory requirements.

Do You Need Help to Avoid Trust Administration Mistakes?

For more information, please attend one of our upcoming FREE webinars. If you have questions or concerns about how to avoid mistakes during trust administration, contact an experienced Essex Junction trust attorney at Unsworth LaPlante, PLLC by calling 802-879-7133 to schedule your appointment today.

Ellen LaPlante
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