Being asked to serve as the trustee of someone’s trust is an important responsibility. The role of the trustee is a key part of successful Kentucky trust administration. As trustee, you are the person responsible for making sure the provisions of the trust document are followed. Essentially, the trustee is the one who is ultimately responsible for managing the trust property and keeping accurate records of all transactions made in relation to the trust. Here are four common mistakes you should try your best to avoid.
No. 1: Avoid neglecting your fiduciary duty at all costs
Trustees are required at all times to manage the trust and the trust property, by faithfully following the terms and with only the best interest of the beneficiaries in mind. In fact, trustees are subject to certain regulations, including the Uniform Prudent Investor Act, which is a law the purpose of which is to protect beneficiaries from improper investment choices. Consequently, as a trustee you can ultimately be held personally liable for investment losses or missed investment opportunities and profits that beneficiaries could have received had you been more cautious in your investment choices.
Be sure to obtain professional assistance if you feel you need it
In light of the significant amount of responsibility trustees have with regard to Kentucky trust administration, it is always a good idea to get some advice from professionals whenever necessary. This is especially true with regard to investments. In fact, management of investments is probably the most highly litigated legal issue in trust administration. Avoiding litigation on this issue is important because the process is typically expensive and time-consuming. Ultimately, a substantial amount of the trust’s assets could likely be wasted on legal fees defending against disputes.
No. 2: Be sure to remain neutral in dealings with the parties involved
Your fiduciary duty requires that you look past your own interests or biases and comply with the terms of the trust document in every decision you make with regard to the trust property. However, doing so may not be as easy as it seems, especially if you happen to be related to a trust beneficiary, or if you have a personal bond with the family in general. Regardless, the trustee must remain neutral at all times and in all transactions.
No. 3: You must provide a complete reporting of what you do
The fiduciary duty of a trustee requires that you provide a complete and accurate report of all transactions involving the trust property. There has actually been a substantial increase in the frequency of lawsuits involving trusts. For this reason, it is important that, as a trustee, you are aware of the scope of your responsibilities, and that you also understand your risk for personal liability if you violate your duties.
A trustee is not only required to make appropriate investments of the trust assets and manage those assets properly. The trustee must also prepare tax returns for the trust and make an accounting to the beneficiaries when required. Each decision you make related to the trust property needs to be documented. This is especially true for decisions you make to approve or deny distributions. If you document everything, if any disputes arise, you will be better prepared to defend your actions and shield yourself from personal liability.
No. 4: Discuss the issue of compensation up front
Generally speaking, trustees are entitled to receive compensation for their services. What will be considered a reasonable fee can be different depending on the laws in the state where the estate is located. Whether a particular trustee requests a fee often depends on the relationship with the grantor or the grantor’s family. Unlike corporate trustees which publish a fee schedule, an individual trustee should negotiate a reasonable fee for their services up front.
If you do not discuss compensation up front, when the issue of compensation comes up years later, you might have to go to court to resolve the issue. It is not uncommon for a trustee to serve in that capacity for several years without being paid, then later when the time and effort required increases, the trustee will try seek compensation. If the fee has not already been discussed, the beneficiaries may take issue which would then require court intervention to be resolved.
Choosing the right trustee takes some thought and planning
If you are in the process of establishing the terms of your trust and it is time to choose your trustee, there are many things to consider. This is a very important decision because you need to choose someone who you believe can be prudent in managing your trust assets. That person must also be diligent in following the terms of the trust and remaining neutral. Talk to your estate planning attorney for advice in selecting the right trustee.
If you have questions regarding Kentucky trust administration, or any other estate planning matters, contact Gersh Law Offices, P.S.C. for a complementary consultation either online or by calling us at (502) 423-7023.