Seven Major Pitfalls to Avoid During Trust Administration

Especially in Florida, trust administration is a complex process that features subtle nuances. A small mistake or oversight could have devastating consequences down the road. Whether you’re a new trustee or have experience, being aware of common pitfalls can help ensure the proper and effective management of the trust. More on that below.

Trust administration is not a one-size-fits-all process. Trustees should not hesitate to seek the assistance of professionals, such as an accountant, financial advisor, trust administrator, or most importantly, a St. Petersburg estate planning lawyer. Trustees who attempt to go it alone without proper expertise risk making avoidable mistakes.

Failure to Understand the Trust Document

One of the most common mistakes is not thoroughly reading and understanding the trust document. Trustees must understand the specific terms of the trust, including the purpose, assets, beneficiaries, and any special instructions.

Trustees who fail to follow the terms set out in the trust document could be held liable for breach of fiduciary duty. So, leave nothing to chance. Always take time to consult with legal and financial professionals to ensure that you’re interpreting the document correctly.

Not Communicating with Beneficiaries

Failing to keep beneficiaries informed about the trust’s status, asset distributions, and any issues that arise can create confusion, resentment, and legal challenges. Trustees should provide regular updates and answer any questions beneficiaries may have, ensuring transparency and trust throughout the process.

Mismanaging Trust Assets

As mentioned, trustees have a fiduciary duty to manage trust assets responsibly. They must focus on growing the estate and maintaining its value. Mismanaging assets, whether through poor investment choices, neglecting to diversify holdings, or failing to properly maintain property, usually causes financial losses. A trustee should seek professional advice regarding investments and ensure assets are properly maintained and protected.

Ignoring Tax Implications

Trusts often have complex tax consequences. Failure to properly plan for taxes can lead to substantial liabilities for both the trust and its beneficiaries. Trustees must be aware of tax deadlines, ensure that any required filings are made, and consider the tax implications of distributions or changes in the trust.

Failure to Follow State Laws

As hinted above, Florida has unique laws governing trusts and estates. Ignorance of the law is no excuse. Trustees who are unaware of these legal requirements may inadvertently make mistakes that could jeopardize the trust’s integrity. These errors could include everything from improper filings to failing to follow specific rules regarding the distribution of assets.

To minimize or eliminate these risks, trustees should always familiarize themselves with the applicable state laws or work with a top-notch St. Petersburg estate planning lawyer.

Improper or Delayed Distributions

Trustees are obligated to distribute assets to beneficiaries in a timely manner, per the terms of the trust. Failing to distribute assets as required—whether due to delays, misunderstanding the terms, or intentional withholding—can lead to legal challenges and accusations of breach of fiduciary duty.

Following up, trustees should keep accurate records and follow the schedule outlined in the trust document. If a distribution is delayed for any reason, beneficiaries should be notified promptly and given an explanation.

Commingling Personal and Trust Funds

This pitfall may be the biggest no-no. Trustees must keep trust assets separate from their personal assets to avoid confusion, mismanagement, or accusations of fraud. Commingling funds can lead to the loss of liability protection for the trust and create unnecessary complications. Open separate bank accounts and investment portfolios for trust assets, and never use trust funds for personal expenses unless the trust explicitly allows it.

Connect With a Dedicated Pinellas County Lawyer

The essential estate planning process isn’t as complicated as many people believe it is. For a confidential consultation with an experienced estate planning lawyer in St. Petersburg, contact Drude Tomori Law. Virtual, home, and after-hours visits are available.

Source:

leg.state.fl.us/statutes/index.cfm?App_mode=Display_Statute&URL=0700-0799/0736/0736.html