One of the most common additions to a comprehensive estate plan is a trust agreement. Once used almost exclusively by the wealthy as a mechanism by which they could pass down the family fortune to succeeding generations, trusts are now frequently found in the average person’s estate plan and are used to accomplish a multitude of estate planning goals. Although every trust agreement is unique, one thing all trusts have in common is a Trustee who is charged with administering the trust agreement. Appointed by the Settlor (creator of the trust), a Trustee has a wide range of duties and responsibilities during the administration of a trust. For a first-time Trustee, just the thought of successfully administering the trust agreement can be intimidating. If you find yourself the Trustee of a trust for the first time, you may find the following list of common trust administration mistakes, and how you might avoid them, to be helpful.
- Misunderstanding a trust term. A well-drafted trust agreement may have a number of complex legal and financial terminology in it that can confuse or mislead a Trustee who has neither a legal or financial background. To avoid making this mistake, read through the entire trust agreement several times until you are sure you understand every provision. If anything is vague or confusing, make a note to ask the trust attorney immediately. Ignorance is not an acceptable excuse if you make a mistake as Trustee and in some cases, you could be held personally responsible for an error.
- Failing to consult a trust administration attorney. As Trustee, you will likely have numerous legal questions and concerns. It is not a role you should take on without a legal professional to provide you with advice and guidance. This mistake can easily be avoided or corrected by retaining the services of a trust administration attorney.
- Not understanding and/or using the “prudent investor standard.” When you invest assets owned by a trust, you must do so using the “prudent investor standard” which essentially means you must avoid risk, guard the trust principal, and be more careful with the assets and income than you would be with your own assets and income. A trust administration attorney can help you understand what is required of you and a financial advisor can help you avoid violating the standard.
- Forgetting about future beneficiaries. As the Trustee, everything you do must be for the best interest of the trust beneficiaries…all the trust beneficiaries. If the trust has both current and future beneficiaries, all decisions you make must consider the best interest of both classes of beneficiaries. This mistake is easy enough to avoid making by being aware of the need to think of future
- Failing to honor the trust purpose. It is very difficult to set aside your own opinions; however, as the Trustee, everything you do must further the Settlor’s intended purpose and must abide by the trust terms created by the Settlor to further that purpose (unless a term is illegal or unconscionable).
- Creating a conflict of interest. If the Settlor was a family member or friend, there is a good chance you know at least one beneficiary. This can create a conflict of interest if you allow it. Make sure that any personal relationship you have with, or knowledge of, a beneficiary does not in any way interfere with your duties as Trustee.
- Mistakes made on a tax return or involving taxes. A trust is a separate legal entity. Therefore, a trust must file a trust tax return each year. If any taxes are due, they must also be paid in a timely manner. To ensure the tax returns are prepared correctly and any tax due has been calculated accurately it is best to hire a certified public accountant (C.P.A.) to help you.
Contact Trust Administration Attorneys
Please feel free to download our FREE estate planning worksheet. If you have questions or concerns regarding trust administration in Illinois, or you wish to retain the services of an attorney to help you administer a trust, contact the experienced trust administration attorneys at Hedeker Law, Ltd. by calling (847) 913-5415 to schedule an appointment.