Top 10 Mistakes Made By Trustees
Updated: Jan 2
As a trustee, it is important to understand and avoid common mistakes that can jeopardize the trust and your role as a trustee. Here are the top 10 mistakes made by trustees:
Failing to understand and follow the terms of the trust: It is essential that trustees understand the terms of the trust and follow them carefully. The trust document spells out the specific duties and responsibilities of the trustees, as well as the rights and interests of the beneficiaries. Trustees who fail to understand and follow the terms of the trust may be in breach of their duties and can face legal problems and conflicts with beneficiaries.
Failing to manage trust assets properly: Trustees have a fiduciary duty to manage trust assets prudently and in the best interests of the beneficiaries. This includes investing trust assets wisely and avoiding risky investments. Trustees should be familiar with the trust's investment policies and should seek the advice of financial professionals as needed.
Failing to communicate with beneficiaries: Trustees have a duty to keep beneficiaries informed about the administration of the trust and any decisions that affect them. This includes providing regular accountings and updates on the trust's financial status and activities. Failing to communicate with beneficiaries can lead to misunderstandings and mistrust, which can damage relationships and undermine the trust.
Failing to properly document trust decisions: It is important for trustees to keep accurate records of trust activities and decisions. This includes maintaining detailed financial records and keeping minutes of meetings. Proper documentation can help to ensure transparency and accountability in the administration of the trust and can provide a record of the trustees' actions in the event of a legal challenge.
Failing to seek professional advice: Trustees may not have the necessary expertise to handle complex trust matters. Seeking the advice of professionals such as attorneys and financial advisors can help trustees fulfill their duties effectively and avoid mistakes.
Failing to diversify trust assets: Diversifying trust assets can help to mitigate risk and maximize returns. Trustees should be aware of the importance of asset diversification and take steps to ensure that trust assets are not overly concentrated in a single asset class. Trustees should also be mindful of the tax implications of trust investments and should seek the advice of a tax professional as needed.
Failing to pay taxes and file required tax returns: Trustees are responsible for paying taxes on behalf of the trust and for filing required tax returns. Failing to do so can result in penalties and fines, which can erode trust assets and harm the trust's reputation. Trustees should be familiar with the tax requirements of the trust and should seek the advice of a tax professional as needed.
Failing to properly distribute trust assets: Trustees must follow the terms of the trust when distributing assets to beneficiaries. Failing to do so can lead to disputes and legal problems. Trustees should be familiar with the distribution provisions of the trust and should ensure that distributions are made in a timely and accurate manner.
Failing to keep trust property insured: Trustees have a duty to protect trust assets. This includes ensuring that trust property is adequately insured against loss or damage. Trustees should review the trust's insurance coverage regularly to ensure that it is sufficient and up-to-date.
Failing to properly manage conflicts of interest: Trustees must avoid conflicts of interest and disclose any potential conflicts to the beneficiaries. A conflict of interest occurs when a trustee has personal interests that may influence their decisions as a trustee. Trustees who fail to properly manage conflicts of interest may be accused of misconduct and can damage the trust's reputation. Trustees should be mindful of potential conflicts and should disclose any conflicts to the beneficiaries and seek the advice of legal counsel as needed.
By understanding and avoiding these common mistakes, trustees can help to ensure the success and longevity of the trust.