At times people get asked to be a trustee or administrator or an estate for a member of the family or for a friend. Most of the time this involves nice compensation too. You might figure, How hard can this be? However, before you simply accept this obligation, you really need to consider a few things in order to avoid being sued by the beneficiaries: You must have an understanding and appreciation for the duties and responsibilities of a trustee. • The probate code provides that a trustee must administer the trust with the reasonable care, skill and caution that a “prudent person” acting in a like capacity would do. • The trustee must act in good faith and actions must be consistent with the trust’s purposes. • The trustee has a duty to account to the beneficiaries. • The trustee has a duty to deal impartially with all beneficiaries, so don’t allow one beneficiary to use trust property without providing a similar benefit to other beneficiaries. • Trustees do not reward one beneficiary for his/her cooperation with the trustee. • Your duty is to avoid conflicts and to avoid self-dealing. In other words, being a trustee is no small feat and can involve a lot of liability. Some potential scenarios are: • The client has problems with their child. Do you want to get involved? • The sale of a business had to be re-negotiated after the buyer stopped making payments to client’s estate. • There are issues with mold in the decedent’s condo that have caused the sale to fall through numerous times. • The client had investments in limited partnerships that need to be re-assigned to the beneficiaries since they are not salable. • What if, as trustee, you are contacted by the decedents insurance company about a car accident that may involve litigation? • The decedent had been running a business for a friend who passed away. What are the next steps? Conclusion: Do’s and Don’ts 1. Do read the trust document and/or will if it is an estate. They cover the rules under which you will operate. 2. Do create a checking account for the trust and/or estate. All income and expenses should go through this account. While you can and should invest the money, a checking account will enable you to make distributions and payments and keep track of them. 3. Do keep the best interests of the beneficiaries in mind at all times and keep in regular contact with them. 4. Do provide the beneficiaries and anyone else indicated in the trust or estate with an annual account of trust/estate activity. This can be a copy of the checking and investment account statements or a more formal trust account prepared by an accountant or attorney 5. Do invest trust/estate funds prudently and productively. You cannot simply leave the trust/estate funds in a savings account. And you can’t put them all into a promising new company. You need to diversify the trust portfolio among stocks and fixed income securities. It is VERY wise to get professional investment advice. 6. Do file annual income tax returns for the trust/estate.In addition, a detailed accounting for the income and expenses and distributions is crucial. Moreover, you need to determine the value of each asset in the trust or estate. 7. Don’t have any personal financial dealings with the trust or estate especially if there are other beneficiaries. For instance, you cannot borrow money from the trust or estate or lend the trust or estate money. 8. Notify all beneficiaries that you are now the trustee 9. Gather all financial information for the trust or estate such as including life insurance, real estate, retirement plans and mutual funds. 10. Apply for a Tax ID for the trust or estate. 11. Set up bank accounts for the trust or estate 12. Notify social security about the death of any recipient of social security. 13. DONT GO IT ALONE. Get professional advice to make sure you are correctly fulfilling your role.
Posted on: Wed, 27 Aug 2014 11:43:56 +0000