Planning for the distribution of your estate is complex. There are so many variables to consider, like family dynamics, changing values and ever-changing tax rules. It can be easy to simply ignore the planning, but that just leaves your heirs to clean up a huge mess and often causes strife trying to figure out what a person’s intentions were.
Being trustee is a serious job
Trusts are part of most estate plans. In California, a typical estate plan has a living trust that controls and distributes all of a person’s assets at death. The trust names a trustee to be in charge of carrying out the terms of the trust document and the wishes of the person or people who created the trust.
The trustee’s job is not simple one- and it comes with heavy responsibility and plenty of landmines. For one thing, the trustee has a fiduciary duty to put the needs of the trust’s beneficiaries ahead of their own, avoid self-dealing and manage the trust prudently and reasonably.
Further, trusts often have specific provisions for how to manage assets that must be followed. There may be restrictions or prohibitions. Also, the laws and the tax code governing trusts are complex and pitfall laden.
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Mistakes to avoid
With so many requirements surrounding what for most people is a part-time job, it’s not surprising that trustees often make mistakes. Here are six common ones:
Not reading or understanding the trust document. Missing one phrase or comma can completely change the meaning of a paragraph, and lead to the trustee not following the instructions laid out in the trust document. This can have huge implications for the beneficiaries of the trust and can land the trustee in the middle of a legal brawl.
Not following the grantor’s wishes. The person who created the trust, the grantor, had decisions and choices to make about how the trusts would manage and distribute their assets when they designed the trust. Ignoring those provisions can land a trustee in hot water with the beneficiaries or courts. It is the trustee’s responsibility to carry out those wishes, even if the trustee disagrees with the choices.
Poor recordkeeping. Trusts are separate legal entities. A trust’s beneficiaries often have a legal right to require the trustee to account for what they’ve done with the trust’s assets. Failure to keep proper records, or combining a trust’s assets with other accounts, can result in complex forensic accounting and expensive legal bills. There are also important notice and accounting requirements for trusts. If these are not met, the trustee can be in deep trouble.
Procrastinating. Delaying the settlement of an estate and transferring title of assets to a trust only makes things harder. The longer you wait, the less clear the paper trail can be and the more costly it will be to figure it out in the end. Whether it’s getting assets into the trust or making timely distributions to beneficiaries, delaying rarely makes things better.
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Failure to communicate with beneficiaries. Beneficiaries are entitled to some records from a trustee, and failure to deliver those records in a timely manner creates a suspicion or presumption that the trustee is up to no good. Transparency is often the best policy, and working with beneficiaries when things aren’t going smoothly can make the trustee’s life easier.
Not seeking professional advice. This might be the most important mistake, because professional advice, though expensive, can help you avoid the other mistakes that are even more costly. Attorneys, accountants, investment and other advisors all work with trusts and can advise a trustee on the provisions of the trust document and the proper execution and management of the trust assets. A trustee is still ultimately responsible for what happens in the trust, but getting good professional advice will help you to execute your responsibilities and could help shield you from adverse consequences if things go sideways.
Being a trustee is a complex responsibility, and not one to be taken lightly. But with the right help, and good professional advice, it doesn’t have to be difficult. It is also one final way to honor a loved one by making sure that their final wishes are executed, and, in most cases, their heirs are taken care of.
At Blankinship & Foster, we have been helping trustees manage trust investments for many years. In fact, we are celebrating 50 years of helping clients with their financial planning and investment management.
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