Being asked to serve as a trustee of a trust is a highly responsible position for anyone to find themselves in. The role of a trustee is essential to successful trust administration and comes with plenty of considerations, such as liabilities behind making mistakes. As trustee, the person who has been appointed is responsible for making sure the terms of the trust documents are fulfilled to their fullest and most accurate to avoid liabilities and legal issues.
All this may sound scary, but being aware of the role as well as the costly mistakes that can be made are the first steps to an unblemished execution of a trust. Here are some important pitfalls to look out for in trust administration.
Violating Fiduciary Duties
A trustee is always required to manage the property involved in a trust and at the same time make sure that all beneficiaries are kept in mind within all decisions being made. All actions taken on behalf of the trust and its beneficiaries must be honest and transparent, encouraging more communication in the process. A trustee needs to avoid engaging in transactions that may be looked at as a conflict of interest.
Refusing to Seek Professional Help
Trustees should seek professional assistance when carrying out responsibilities involved in administering a trust. When a trust becomes irrevocable upon the death of the creator of the trust, the trust itself becomes a separate taxable entity which subjects the trust to a number of federal and state tax compliance requirements.
With this in mind, it’s highly recommended for a trustee to work with a financial professional who is used to handling these kinds of duties. This will shift the duty to invest trust’s assets prudently from the trustee to the financial advisor. But while this is good news for the trustee looking to avoid personal responsibility for any issues, it puts the financial professional in the headlights of risk. A bankers professional liability insurance plan can protect the financial professional who has been hired to help with a trust administration project, providing the financial help that banking professional needs to keep liabilities low during litigation.
Not Remaining a Neutral Party
As fiduciary, personal interests need to be set aside to enforce the terms of the trust document impartially in every decision that is being made. This may be more difficult than it seems, especially if the trustee has some type of relationship to one of the beneficiaries of the trust, or even if they have emotional ties to the family in general.
Not Providing Full Reporting
A trustee has a duty to provide beneficiaries a complete and accurate reporting of all transactions that circulate the trust property. This is another very highly discussed area in trust administration, making it very important that trustees are aware of all the responsibilities included in the role and to understand the potential risks for liability. State trust accounting laws mandate the information and format and which accounting must be provided to beneficiaries. Aside from documenting and reporting all the financial transactions of a trust, the reasoning behind each decision the trustee makes that relate to trust property should also be documented.
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