Have you recently learned that a family member or close friend appointed you as the Trustee of a trust? If this is your first time serving in this role, you may feel overwhelmed or uncertain about managing the trust. These reactions are entirely normal but remember that the Settlor (the person who established the trust) clearly had great confidence in your abilities when selecting you for this important responsibility. To protect yourself and the trust, however, the attorneys at Legacy Care Law Firm offer several reasons why a Trustee should hire an attorney for trust administration.
What Is the Trustee’s Role during Trust Administration?
The role of a Trustee is a fiduciary one, requiring you to exercise greater caution with trust assets than you would with your own, as you owe a high duty of care to both the trust and its beneficiaries. A Trustee’s responsibilities span a wide range of tasks, including:
- Overseeing and safeguarding trust assets
- Following the trust’s terms unless they are illegal, impossible, or unreasonable
- Investing trust funds following the “Prudent Investor Standard”
- Keeping a close watch on trust investments
- Communicating regularly with beneficiaries
- Resolving beneficiary disputes
- Exercising discretion when necessary
- Disbursing funds to beneficiaries
- Evaluating and approving distributions if given discretion
- Maintaining comprehensive records
- Filing and paying trust-related taxes
Why Do You Need a Trust Administration Lawyer?
While there is no legal requirement that a Trustee hire a trust administration lawyer to help, doing so is the best way to prevent costly mistakes on your part. Many of the duties and responsibilities of a Trustee require more than a passing knowledge of the law and/or finance concepts and strategies. No matter how good your intentions may be, without the advice and guidance of an experienced attorney mistakes are likely, such as:
- Misunderstanding a Trust Term: Trust agreements often contain language that is ambiguous or confusing, particularly if legal jargon is used or the terms are outdated. A simple misinterpretation of a term could lead to actions that are inconsistent with the trust’s intended purpose, potentially opening the door to disputes with beneficiaries. A trust administration lawyer can review the trust document, clarify any confusing language, and ensure you understand your duties. This prevents costly errors and ensures that the trust is administered according to the Settlor’s wishes.
- Failing to Use the Prudent Investor Standard: As a Trustee, you are responsible for managing the trust assets. However, you are not free to make investment decisions based on personal preference or instinct. Instead, you must follow the “prudent investor standard,” which requires you to act with caution, avoid unnecessary risk, and prioritize preserving the trust’s principal. Essentially, you must be more careful with the trust’s assets than you might be with your own investments. Failure to adhere to this standard can lead to loss of trust assets and legal liability. A trust administration lawyer can help you understand this standard and guide you in making sound investment decisions that fulfill your legal duties.
- Forgetting about Future Beneficiaries: In many trusts, there are both current beneficiaries, who are entitled to distributions now, and future beneficiaries, who will receive distributions later. It is easy to focus solely on the current beneficiaries’ needs and overlook the interests of future beneficiaries. However, as a Trustee, you are obligated to act in the best interests of all beneficiaries, present and future. A lawyer can help you balance these competing interests and ensure that your decisions are fair and in line with the trust’s terms, reducing the risk of disputes between beneficiaries.
- Failing to Honor the Trust Purpose: One of your primary responsibilities as Trustee is to administer the trust in a manner that furthers the Settlor’s intended purpose. It can be challenging to set aside your personal opinions, especially if you have a close relationship with the beneficiaries or disagree with how the Settlor structured the trust. However, it is critical that you strictly follow the terms of the trust and ensure that your actions align with the Settlor’s goals. A trust administration lawyer can help you interpret the trust’s purpose, offer guidance on how to implement it, and ensure that your actions comply with the law.
- Creating a Conflict of Interest: If the Settlor was a family member or close friend, it is likely that you know the beneficiaries personally. While this familiarity can make communication easier, it also increases the risk of a conflict of interest. For example, you may feel pressured to make decisions that favor a beneficiary you have a close relationship with, even if those decisions are not in line with the Settlor’s intentions. A lawyer can help you identify potential conflicts and navigate them effectively, ensuring that your decisions are impartial and based solely on the trust’s terms.
- Tax Errors or Mistakes: A trust is considered a separate legal entity, which means it has its own tax obligations. As Trustee, you are responsible for filing a trust tax return and paying any taxes owed. Trust tax laws can be complex, and even a small mistake on the tax return can lead to significant financial penalties for the trust. Furthermore, failing to pay taxes on time can expose the trust to legal consequences. A trust administration lawyer, often working with a tax professional, can ensure that you meet all tax obligations, file returns accurately, and avoid costly tax penalties. They can also help you understand how taxes affect the trust’s overall financial picture, allowing you to make better-informed decisions about distributions and investments.
Ignorance is not an acceptable excuse if you make a mistake as a Trustee and in some cases, you could be held personally responsible for an error. Having an experienced trust administration lawyer on your side is the key to successfully fulfilling your role as Trustee.
Are You a Trustee Who Needs Help during Trust Administration?
For more information, please join us for an upcoming FREE seminar. If you are serving as the Trustee of a trust and would like assistance during trust administration, 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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