When setting up a trust as part of an estate plan, do not underestimate the responsibilities that will fall to the trustee designated to administer the trust. Serving as a trustee is not an honorary role, and sometimes, it may even make sense to secure professional services.
Protecting and Managing Trust Assets
Though it is common to appoint close relations to administer trusts, doing so is not always best. Busy lives mean loved ones may not always have the time to execute their fiduciary responsibilities. Then too, stress, grief and a lack of information or experience can blend together and result in costly and painful mistakes. Attorneys at Frank & Kraft caution that it is essential to take appointing a trustee seriously:
The role of a Trustee is a substantial one, often more involved than people anticipate. Trustees are responsible for protecting and managing trust assets, as well as carrying out the terms of the trust as set forth by the Settlor (the person who created the trust). The duties are wide-ranging and complex, covering everything from asset management and record-keeping to conflict resolution among beneficiaries. Because the Trustee’s actions directly impact the trust’s success or failure, choosing the right person for the role is crucial. Nevertheless, it is not uncommon for Settlors to appoint a family member or friend without fully understanding the demands of the position, potentially leading to complications if the appointee lacks the necessary skills or experience.
Because trustees are fiduciaries, they can be held personally liable to the trust’s beneficiaries for errors and oversights. Some mistakes in overseeing a trust include:
- Failure to follow the trust’s terms: If the Trustee does not distribute assets according to the trust’s instructions, beneficiaries may have grounds to hold the Trustee accountable.
- Overlooking debts or taxes owed by the trust: Failing to pay debts or taxes in a timely manner could lead to fines or penalties that diminish the trust’s value.
- Making high-risk investments: Trustees are generally expected to make conservative investment choices, focusing on asset preservation. Risky investments that result in financial loss can make the Trustee liable.
- Lack of communication: Failing to keep beneficiaries informed about significant trust matters may cause issues and result in personal liability for the Trustee.
- Conflict of interest: If the Trustee’s actions benefit their own interests over the trust’s, this “self-dealing” could result in significant liability.
Securing Professional Help
When establishing a trust, it can be helpful for families to secure professional help. Financial advisors and trust attorneys can provide guidance not only when setting up a trust, but also in administering it. It’s even possible to name a professional trustee. The appointment of a neutral, experienced, professional fiduciary to administer a trust makes especially good sense if conflicts or disagreements or other complications are a possibility. For those aging solo, as more people are, the services of a professional fiduciary can also be reassuring.
Given the significant responsibilities involved in serving in the fiduciary role of trustee, a type of bond, referred to as a fiduciary or trustee bond is frequently required. Essentially, fiduciary and trustee bonds serve as a guarantee that duties will be carried out in accordance with the law and in the best interests of beneficiaries. Colonial Surety makes it easy and speedy for fiduciaries and trustees in every state to obtain their bonds: simply: get a quote online, fill out the information, and enter a payment method. Print or e-file the bond from anywhere.
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