When a trustee of a trust makes a mistake or error, the ramifications can be great for not only the trustee of the trust but for the beneficiaries and the trust itself. In this article, we explore some of the trustee errors that lead to trust litigation in Los Angeles. Our lawyers can assist you in fiduciary law matters in Los Angeles.
First, you have to ask yourself some questions: What is the main function of a trustee of a trust? The trustee’s main function is to protect the assets of the trust and to make them income-producing for the benefit of the beneficiaries of the trust. Who is a beneficiary of a trust? A beneficiary of a trust is a person who has a right to income or principal of the trust under the terms of the trust.
Top eleven trust management mistakes by trustees of trusts can be categorized in many different ways, but some of them are below:
- Mixing the assets of the trust with the trustee’s personal assets.
- Not keeping separate books and records of the trust transactions.
- Overpaying one beneficiary over other beneficiaries.
- Favoring one’s own benefits in the trust over the interests of the beneficiaries.
- Overpaying trustee’s fees in Los Angeles.
- Not having a diverse portfolio of assets under the Prudent Investor Rule.
- Not accounting to the beneficiaries.
- Borrowing from the trust for your personal gain where the trust language prohibits profiting from the trust or where the trust is silent about it.
- Not getting legal advice from an expert family trust lawyer.
- Relying on others to manage the trust tasks that cannot be delegated.
- Not following the terms of the trust or getting court instruction about items that are uncertain. See this interesting 2020 case called Trolan here regarding what the Court can order. Don’t hold up the distribution of the trust assets if you are a trustee, and seek a Petition for Instructions if you are not going to distribute the assets for a reason and ask the Court if that is acceptable.
When you are a trustee of a trust or multiple trusts, you must take action and get advice early in trust administration so that you do not make these common trust mistakes. As a trustee or successor trustee, you are the manager of the trust with tremendous responsibilities.
There are many other errors that can also impact the trust estate distribution:
1. Failing to send the required notification to beneficiaries, heirs and government entities.
2. Making a distribution to early.
3. Not having a Trust Administration plan and timeline.
4. Failing to timely inventory and appraise all the assets of the trust, and failing to inquire about non-trust assets.
5. Failing to make the proper tax allocations and tax elections.
6. Making personal use of trust assets.
7. Failing to prepare early for estate taxes.
8. Failing to keep beneficiaries informed.
9. Failing to keep a trustee’s notebook, and failing to timely account to the beneficiaries.
What happens if you make a mistake as a trustee of a trust?
The Court can issue a judgment against you called a surcharge judgment which can range from reducing your trustee’s fees to outright issuing an order to disgorge profits, money damages against the trustee, and even attorneys fees and costs.
Are there things you can do to save the trust from damage?
If your trustee has made an error, there may be a number of strategies that he or she can employ to fix it, or to prevent damage, or reverse damage. That requires advice from a skilled trustee’s lawyer to implement such remediating steps.
Call Mina Sirkin when you are a trustee or successor trustee looking to find a trust lawyer to avoid mistakes and help you with administration or management of the trust, get solid advice about trust management and administration from our expert with over 27 years of experience in family trusts. We help trustees avoid expensive errors.
Read our related articles below: What is a professional trustee?