If you have recently learned that you have been appointed as the Trustee of a trust, you may feel honored by the confidence the Settlor placed in you. At the same time, you may feel overwhelmed by the responsibilities that come with the position. Serving as Trustee comes with significant legal obligations and fiduciary duties that can expose you to personal liability if mistakes are made during the administration process. Many Trustees in Andover, New Hampshire initially wonder whether they really need an attorney to help administer a trust. After all, if the trust appears straightforward and the beneficiaries are family members, it may seem reasonable to handle everything on your own. While New Hampshire law does not generally require a Trustee to hire a lawyer, the New Hampshire attorneys at Legacy Care Law Firm explain why you should consider doing so if you are planning to administer an Andover trust.
Understanding the Trustee’s Role
A Trustee serves as a fiduciary, which means you are legally obligated to act in the best interests of the trust beneficiaries and administer the trust according to the terms established by the Settlor. While some trusts terminate shortly after administration begins, others continue for decades and require ongoing management. In either case, Trustees must comply with New Hampshire trust laws while fulfilling their obligations under the trust agreement. Your duties and responsibilities as a Trustee may be numerous and varied, including:
- Locating and securing trust assets
- Obtaining tax identification numbers
- Managing investments
- Maintaining trust records
- Communicating with beneficiaries
- Filing trust tax returns
- Making distributions
- Paying trust expenses
- Interpreting trust provisions
- Resolving beneficiary concerns
Trust Administration Is Often More Complicated Than People Expect
Many Trustees assume that trust administration simply involves distributing assets to beneficiaries; however, the process can be far more complicated. Trust documents frequently contain legal language that can be difficult to interpret. The trust may contain multiple beneficiaries with competing interests. Tax obligations may arise that require you to calculate and pay taxes. Investment decisions must be made carefully. Assets may require valuation or management before distribution. Ultimately, even a seemingly simple trust can involve numerous legal and financial decisions.
Unfortunately, a Trustee cannot avoid responsibility by claiming a lack of experience or knowledge. If mistakes occur, beneficiaries may seek to hold the Trustee personally liable for resulting losses. For that reason alone, many Trustees choose to work with an experienced trust administration attorney.
Misunderstanding Trust Language Can Create Serious Problems
One of the most common challenges for a first-time Trustee is interpreting the trust provisions. Understanding these provisions, however, is critical to successfully fulfilling your job as Trustee. Trust agreements often contain technical legal language, references to outdated circumstances, or provisions that appear ambiguous. Consequently, a Trustee may read a provision one way while beneficiaries interpret it differently. For example, a trust may direct the Trustee to make distributions for a beneficiary’s “health, education, maintenance, and support.” Determining what qualifies as “health, education, maintenance, and support” can be more difficult than it initially appears, and not surprisingly, a beneficiary may interpret those terms more broadly than a Trustee. A misunderstanding or disagreement regarding trust language can lead to improper distributions, disputes among beneficiaries, or claims that the Trustee breached fiduciary duties. An attorney can review the trust document, explain its provisions, and help ensure that administration decisions align with the Settlor’s intent.
Trustees Must Follow the Prudent Investor Rule
Trusts often contain investment assets that must be managed by the Trustee during the administration of the trust. Some Trustees mistakenly believe they can invest trust assets according to personal preferences or investment philosophies. New Hampshire law, however, requires a Trustee to comply with fiduciary investment standards that prioritize the interests of beneficiaries rather than the Trustee’s personal objectives. Referred to as the “prudent investor rule,” this rule requires Trustees to act carefully, prudently, and reasonably when managing trust assets by:
- Diversifying investments
- Evaluating risk
- Preserving principal
- Monitoring investment performance
- Considering the trust’s objectives
- Balancing current and future beneficiary interests
Along with abiding by the prudent investor rule, a Trustee must also take into consideration any specific investment guidelines created by the Settlor in the trust agreement. A Trustee who fails to manage investments prudently and in accordance with the terms of the trust could be held personally responsible for losses. An experienced trust administration lawyer can help a Trustee understand their investment obligations and avoid costly mistakes.
Balancing the Interests of Multiple Beneficiaries
Trusts frequently have more than one beneficiary and some beneficiaries may be entitled to current distributions while others may inherit trust assets years later. As a Trustee, you must consider the interests of both current and future beneficiaries. For example, a surviving spouse may be entitled to trust income during his or her lifetime, while children ultimately inherit the remaining trust assets. Distributing too much to the spouse could harm the children’s interests. Refusing reasonable requests could unfairly disadvantage the spouse. Balancing these competing interests is one of the most difficult aspects of trust administration. An experienced trust administration attorney can help you navigate these situations while reducing the likelihood of future disputes.
The Trustee Must Honor the Settlor’s Intentions
Trustees are close friends or family members of the Settlor, which can create its own challenges. As the Trustee, you may disagree with certain provisions of the trust. You may believe a beneficiary deserves more or less than the Settlor directed. You may feel pressure from family members to make decisions that differ from the trust’s instructions. Despite those feelings, however, your duty is to administer the trust according to the Settlor’s wishes. A Trustee cannot simply substitute personal judgment for the instructions contained in the trust agreement. An attorney can provide objective guidance and help ensure that trust administration remains focused on carrying out the Settlor’s intentions.
Family Relationships Can Create Conflicts of Interest
Many trust disputes arise because Trustees and beneficiaries know each other personally and have a preexisting relationship. For example, a Trustee may be a sibling, child, spouse, or close friend of one or more beneficiaries, which can create tension and allegations of favoritism. Even if you believe you are acting fairly, beneficiaries may question your decisions if they perceive that another beneficiary is receiving special treatment. Having an attorney involved often helps create transparency and demonstrates that decisions are being made according to legal requirements rather than personal preferences.
Trust Tax Issues Can Be Complicated
Many people do not realize that a trust may be treated as a separate legal and tax entity with its own state and federal tax filing obligations. As such, a Trustee may be responsible for obtaining a tax identification number, calculating and filing income tax returns, and paying taxes owed by the trust. Making matters more complicated is the fact that trust tax rules are often significantly more complex than individual income tax rules with errors resulting in penalties, interest, and unnecessary tax liabilities. A trust administration attorney can coordinate with tax professionals to ensure that filing requirements are satisfied and deadlines are met.
Beneficiary Disputes Are More Common Than You Might Expect
Even families that generally get along can experience disagreements when it comes to trust administration and distribution. Beneficiaries may question investment decisions, object to distributions, challenge Trustee actions, or demand additional information about trust administration. If these issues are not resolved, you could end up defending the trust and your actions as Trustee in legal proceedings. An attorney can help you maintain appropriate records, comply with notice requirements, respond to beneficiary concerns, and reduce the likelihood that routine disagreements escalate into litigation. If a dispute does arise, having legal counsel already familiar with the trust can be invaluable.
Personal Liability Is a Real Concern
One of the most important reasons for a Trustee to consider hiring an experienced trust administration lawyer to help administer an Andover trust is that a Trustee faces personal liability for mistakes made while acting as Trustee. Unlike many other roles, Trustees can be held personally responsible for damages resulting from breaches of fiduciary duty resulting from things such as improper distributions, poor investment decisions, tax filing mistakes, and self-dealing transactions. Even honest mistakes can expose a Trustee to financial consequences and the cost of hiring an attorney is often far less than the cost of defending a claim alleging Trustee misconduct.
Do You Need a Lawyer to Help You Administer an Andover Trust?
For more information, please join us for an upcoming FREE seminar. If you would like a lawyer to help you administer an Andover trust, contact our trust administration attorneys in our North Andover, Woburn, and Beverly offices at (978) 969-0331. Our Salem and Nashua, New Hampshire office can be reached at (603) 894-4141.
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