5 Trustee Mistakes You Can Avoid Making

If, for the first time, you have been appointed as a Trustee and you are not familiar with the role, you may feel a little overwhelmed. It is normal to feel intimidated by the prospect of administering trusts, but it is also important to avoid mistakes that could lead to disputes, financial losses, or even legal implications. The Indianapolis attorneys at Frank & KRAFT have explained the top five mistakes Trustees commit and how to avoid them. Many Trustees do not fully comprehend their legal obligations, especially those who are serving for the first. This can lead unintentionally to breaches of duty such as conflicts, mismanagement of assets or improper distributions. To avoid making this mistake, you should educate yourself about your fiduciary duties. Consult an estate planning lawyer to clarify your role and responsibilities. Additionally, reviewing the trust document in detail will ensure you understand the specific terms and instructions set forth by the Grantor.

1. Poor Communication with Beneficiaries: One of the most common sources of conflict in trust administration is poor communication between the Trustee and the beneficiaries. Beneficiaries can become frustrated if they feel that the Trustee is not communicating with them about the trust’s status or the decisions being made. This lack of transparency may lead to mistrust and even litigation. To avoid this problem, ensure that you communicate with your beneficiaries in a clear and consistent manner. Regularly update beneficiaries on the trust’s finances and any important decisions. To keep everyone informed, you can hold periodic meetings or write reports. Transparency helps build trust and reduces the likelihood of disputes.
2. Mismanaging Trust Assets: A Trustee is responsible for managing trust assets prudently. This includes making good investment decisions, keeping proper records, ensuring assets are used according to the trust’s terms, and maintaining proper records. Trustees who fail to diversify investments properly, make speculative decisions or neglect asset maintenance could cause the trust significant financial damage. If you need professional financial guidance, do so. A financial advisor who has experience in trust management will help to ensure that investments are aligned with the trust’s objectives and risk tolerance. Additionally, keeping thorough and organized records of all transactions is essential for proper administration and potential audits.
3. Making Improper Distributions: Trustees must adhere strictly to the terms of the trust when making distributions to beneficiaries. Trustees can make a number of mistakes, including distributing funds prematurely, withholding distributions unjustifiably, or making distributions which do not comply with trust provisions. This can lead the Trustee to face legal challenges and even personal liability. Review the trust document carefully before making any distributions to prevent improper distributions. Consult a trust lawyer before taking any action if the terms are unclear, or if there is a beneficiary disputing a distribution. Ensuring that all distributions comply with the trust’s instructions will protect both the Trustee and the trust itself.
4. Failing to Keep Accurate Records: A Trustee is required to maintain meticulous records of all financial transactions related to the trust. This includes documentation of income, expenses and distributions. Failure to do so could lead to serious problems if beneficiaries ask for an accounting or if a legal action is taken. Implement a reliable record-keeping system from the start to avoid this mistake. Consider using accounting software specifically designed for trust administration, or hiring an accountant to help with financial management. Keeping detailed records not only ensures compliance with legal requirements but also helps protect the Trustee from potential claims of mismanagement.
5. Can We Help You Avoid Making Mistakes Serving as a Trustee?For more information, please join us for an upcoming FREE seminar. Call

Frank & Kraft

or (317) 684-500 for an appointment if you have been appointed Trustee and need assistance avoiding mistakes. Mr. Kraft’s primary areas of expertise are estate planning and administration. He also assists clients in Medicaid planning, federal taxation, corporate law and real estate. Latest Posts by Paul A. Kraft Estate Planning Attorney (see all)

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