Trustees have a variety of responsibilities during the trust administration process, and performing the many duties needed to grow and maintain the trust can be time-consuming and overwhelming. Unfortunately, a simple oversight during trust administration can have long-lasting effects if not caught and corrected quickly.
How Trustees Can Prevent Common Trust Administration Errors
One of the biggest mistakes trustees make during administration is attempting to handle all aspects of their trust on their own. Some instructions in the trust agreement may be vague or ambiguous and will need legal clarification before any distributions can be made. Even the most dedicated and scrupulous trustees will need help from outside professionals from time to time, especially when it comes to:
- Closing the estate. There may be assets outside of the trust that will need to go through probate. If you are both the trust administrator and the executor of the estate, your responsibilities will be doubled upon the death of the trust creator. A trust attorney can determine which assets must be probated, gather the necessary documents to close the estate, and ensure all filing deadlines are met.
- Paying taxes. Tax laws can vary widely depending on the state statutes. While tax laws may be relatively simple for New Yorkers with a single residence, they can quickly become convoluted for those who have multiple homes or own real estate in other jurisdictions. If the trustee does not address tax issues before distributing trust assets to the beneficiaries, the trustee may be held liable for paying the deceased’s taxes. An attorney can determine tax liability on all properties and file the appropriate federal and state tax returns to ensure that all necessary estate and inheritance tax payments are made.
- Financial planning. Trustees have the ability to invest trust assets in a way that will grow the estate but still allow for distributions to beneficiaries. Choosing the right investments may require the assistance of financial planners, while an accountant can help establish appropriate income for benefices and ensure the trust complies with tax reporting rules.
- Fiduciary compliance. Trustees must comply with the law when they carry out their fiduciary duties. However, trustees may accidentally violate these duties because they are unaware of the law. For example, trustees are forbidden from mixing trust assets with their own, but a trustee may use his or her personal checking accounts to hold assets or investment dividends. If they make a financial mistake with trust funds, trustees can be held personally liable for repaying the cost of the error to the beneficiaries.
- Business continuity. If the trust owner owned one of more businesses, the trust may contain instructions on who should be appointed as his or her successor. In some cases, the trust may not include instructions on what should happen to the business—or beneficiaries will disagree on who should be entrusted with business duties. A trust attorney can be invaluable in these matters, advising trustees on the legal aspects of appointing successors, making a new continuity plan, or selling the business and adding the profit to the trust funds.
- Retirement accounts. If the trust has been named as the primary beneficiary of an IRA or 401(k) account, a trustee may need the assistance of a trust attorney to ensure that the trust is properly funded with these assets and meet standards for minimum distributions.
- Settling disputes. Not all parties will agree on the proper way to carry out the instructions in the trust agreement. If a beneficiary challenges the trustee’s actions, the trustee may need legal representation to defend his position, perform mediation, or represent the trust in court proceedings.
The Benefits of Consulting an Estate Planning Attorney
No matter where you are in the administration process, it is always a good idea to consult with an experienced estate planning attorney. Our lawyers can assist you throughout all stages of trust administration, protecting you from mismanagement liability and advising you on your best options for managing trust assets. Contact us today through our online form to schedule your initial consultation.