Mistakes Commonly Made by Trustees

Trustees in California, like trustees elsewhere, have significant responsibilities and duties when managing a trust. Mistakes made by trustees can lead to legal and financial complications. As an experienced estate planning lawyer in Folsom, a large portion of my practice is dedicated to designating and advising trustees.  Here are some common mistakes made by trustees in California:

1. Failure to Follow the Trust Terms:
   • One of the most critical mistakes is not adhering to the terms of the trust document. Trustees must act in accordance with the trust’s provisions and distribute assets as directed.
2. Lack of Communication:
   • Trustees should communicate effectively with beneficiaries, keeping them informed about trust matters, decisions, and financial statements. Failing to do so can lead to misunderstandings and disputes.
3. Self-Dealing:
   • Trustees must avoid any actions that could be perceived as benefiting themselves at the expense of the trust or its beneficiaries. This includes conflicts of interest or using trust assets for personal gain.
4. Failure to Diversify Investments:
   • Trustees should prudently invest trust assets and avoid concentrating investments in a single asset or asset class, which can increase risk.
5. Neglecting Recordkeeping:
   • Proper recordkeeping is essential. Trustees should maintain accurate and complete records of all trust transactions, income, and distributions.
6. Lack of Prudent Investment Management:
   • Trustees have a duty to invest trust assets prudently, considering factors such as risk tolerance, investment goals, and the needs of beneficiaries. Failing to do so can result in losses. 
   • This does not mean that the trustee has to be a financial expert, just that they are exerting a due amount of care in executing their responsibilities. If they do not feel comfortable with investments, it will be prudent for them to seek professional guidance. 
7. Ignoring Tax Obligations:
   • Trustees must manage the trust’s tax affairs, including filing tax returns and paying taxes owed. Failure to meet these obligations can result in penalties and tax consequences for the trust and beneficiaries.
8. Not Seeking Legal or Financial Advice:
   • Trustees should seek professional guidance when necessary, especially when dealing with complex financial or legal matters. Failure to do so can lead to costly mistakes.
9. Delay in Distributions:
   • Trustees should make timely distributions to beneficiaries as required by the trust document. Delays can cause financial hardship or legal disputes.
10. Failure to Act Impartially:
    • Trustees must treat all beneficiaries impartially and avoid favoritism. Failing to do so can lead to legal challenges.
11. Misunderstanding the Role:
    • Trustees should have a clear understanding of their roles and responsibilities. Lack of knowledge or misunderstanding the trust’s terms can lead to errors.
12. Not Managing Trust Property:
    • Trustees are responsible for safeguarding and managing trust property, such as real estate or other assets. Neglecting these duties can result in asset depreciation or loss.
13. Not Reviewing and Updating the Plan:
    • Trustees should periodically review and update the trust plan to ensure it remains in line with the needs and goals of the beneficiaries.

Conclusion

To avoid these mistakes, trustees should seek professional advice, maintain transparency in their actions, keep accurate records, and act in accordance with both the trust document and state law. It’s often a good idea for trustees to consult with experts in trust administration to ensure they fulfill their duties correctly and protect the interests of the trust and its beneficiaries. If you are seeking the guidance of an experienced estate planning lawyer in Folsom, please contact Thapar Law at 916-579-0605 or send us a message.