Hopefully, your Carlsbad estate planning lawyer has included a trust in your California estate plan. Carlsbad estate planning lawywer Andrew Fesler has been setting up trusts for many years and he has seen that with the right planning and the right attorney, mistakes can be avoided. One way is to understand what a trustee is required to do when you are choosing your trustee.
A Trust is an important part of many estate plans in Carlsbad, California. It is an estate planning tool that is set up to enable you to direct how your assets are distributed after your death, similarly to what a will does, but with certain benefits that a will does not have. In fact using a trust instead of a will is a popular option in California because of these benefits.
As Carlsbad estate planning lawyer Andrew Fesler will tell you, “If you include a trust in your estate plan, one of the most important decisions you will make is choosing the trustee.” A trustee is the person you select to manage your trust with fiduciary care and responsibility. This decision should be made with thought and care and a good estate planning lawyer should what to consider when making that decision. He or she can explain your options and help you evaluate your choice. Not everyone is fit to serve as the trustee.
Today we’ll look at some of the pitfalls that attorney Fesler thinks even the most trustworthy trustee could encounter.
Basic Duties of a Trustee
Some of the routine duties of the trustee are accurate record keeping of financial transactions, communicating with beneficiaries and their families regularly, and ensuring that the terms of the trust document are followed. They are also 1)to safely protect the assets of the trust and 2)distribute monies or property to beneficiaries according to the wishes of the creator of the trust, called the grantor. Making sure the trustee is aware of their responsibilities and has the skills to do the job can help prevent errors from turning into major financial problems for trustees and beneficiaries.
Some Common Mistakes a Trustee Can Make
Lack of understanding of the responsibilities of a trustee: There are requirements that a trustee must meet. Failing to understand what they are and how to do them is a big problem. Confusion could occur if either the trustee was not fully briefed about what their exact responsibilities are when they were selected, or they misunderstand what the grantor wanted due to unclear language in the trust terms or instructions.
Since trustees can be held personally liable to the beneficiaries for a trust’s mismanagement, it is vital that the trustee read through the trust documents carefully – ideally with the attorney and the grantor of the trust– to identify and explain the duties of trustees, outline what is permitted and what is not, and look at any potential conflicts or issues. The trustee would then have a good understanding of what to do and what the grantor wanted, before making the commitment.
Mismanagement of the trust’s assets. After the grantor has passed away, the trustee has an ethical duty to act in the best interests of the beneficiaries but they also have a legal duty under various federal laws and regulations. If a trustee violates these laws, then the beneficiaries could seek restitution from the trustee for any careless investment actions that resulted in financial losses.
One way a trustee can lessen the chances of mismanagement is to delegate their investment duties to a professional financial planner or investment manager.
Poor Recordkeeping. One of the basic fiduciary duties of a trustee is making payments using trust funds and preparing tax returns for the trust. Therefore, maintaining an accurate accounting of transactions, tax return filings, and any dealings that involve the trust is paramount. Trustees should maintain organized and precise records of every decision made related to the trust property and be ready to provide those records if needed. If a trustee has a concern, they could possibly delegate these type of accounting duties to an accounting firm to ensure accurate recordkeeping and easy access to documentation. But delegating does not relieve them of their responsiblities.
Favoritism. A trustee is contractually obligated to first serve the person who created the trust (the grantor). The beneficiaries come in second when it comes to executing the requirements of the trust. A trustee must not favor one beneficiary over another. They must remain neutral and diplomatic when beneficiaries do not agree with each other or with the instructions of the grantor.
A good way to help a trustee from having to deal with beneficiaries who may want to influence or coerce the trustee is to include specific instructions in the language of the trust for dispute resolution. Your lawyer can help put in language to help a trustee make difficult decisions when placed under pressure by family members. Another way is to consider naming a neutral corporate trustee with no emotional ties to the beneficiaries or the estate. This could be a bank trust department or trust company or even an attorney who does trust administration.
Failing to properly compensate the Trustee. Acting as a trustee takes time and work, and depending on the trust, can sometimes be a full-time job. Trustees are entitled to be paid for their services. If a trustee fails to pay themselves for years and then decides to ask or take compensation later, this often causes issues. The trustee and the beneficiaries may not agree on the amount of payment. This problem can be avoided entirely by adding a fee provision that outlines what the trustee is paid in the trust instructions.
Seek Help from Carlsbad Estate Planning Lawyer Andrew Fesler
Don’t create the possibility of a legal battle between trustees and beneficiaries. Make sure to create and review your trust documents with an experienced estate planning lawyer, especially one who routinely creates trusts. Then include your selected trustee candidate in discussing the trust’s responsibilities, requirements, payment, and grantor’s instructions. If you are in or around Carlsbad, consult with local Carlsbad estate planning lawyer Andrew Fesler.
With many years of experience creating trusts and updating trusts, Attorney Fesler can work with you to create a trust with proper language and instructions to help your trustee avoid making errors. He can also help you select a trustee and help your trustee understand their responsibilities and requirements if necessary.
Working with “Andy” Fesler is not a one-and-done situation. He is all about building a long-term trustworthy relationship with his clients. Quality interactions, individualized services, and a ‘meet-the-client-where-they-are-at’ attitude are what define the experience you will receive. Give our offices a call at 760-444-0943 or message us online.