Let’s face it. Administering a trust is never easy.
While any number of problems can arise when administering a trust, in this post we will look at 4 common problems trustees face in administering a trust.
Problems can (and do) often arise regardless of how well-written a trust document is.
With most living trusts, trust administration occurs in two general steps. First, the settlor (or trustmaker – i.e., the person who makes the trust) makes the trust for his/her benefit and administers it during his/her lifetime.
Then, at the time of the settlor’s death, a successor trustee (hereafter “trustee”) named in the trust document takes over administering the trust.
The legal process of administering a trust is specific and can be complicated. The trustee is the person responsible for administering the trust. To properly administer a trust, the trustee must carry out a variety of legal duties. In addition, because a trustee is a fiduciary, he must at all times act in the best interests of the beneficiaries and must properly and capably handle all trust assets. The failure to handle trust assets correctly or to properly carry out any of his duties as trustee can expose the trustee to liability for damages the estate may incur.
Because the duties are so complicated and the stakes for failing to properly administer a trust are so high for a trustee, having a trust lawyer to work with is always a good idea.
One of the first things a trustee must do is to notify trust beneficiaries. Next, he must compile and provide an inventory of all trust assets. To do this, the trustee must list all assets titled in the name of the trust along with the market value for each asset.
From there, it is important that the trustee determine what assets are titled in Florida and that he or she maintain good records.
Problems administering a trust have many causes of course, but more often than not, trustees run into problems because they fail to get the advice and guidance they need from an experienced trust lawyer.
The following are 4 common problems trustees face when administering a trust.
4 Common Problems Trustees Face in Administering Trusts
Assets were not transferred into the trust
Trust administration involves handling assets titled in the name of the living trust. The successor trustee must find out what the trust owns.
Not surprisingly, then, problems arise when the trustee believes that he has authority to administer assets, but it turns out that he does not.
A critical step in creating a living trust is that the settlor/owner must fund the trust with assets.
But this does not always occur.
Quite often, people will have a trust drawn up, but they fail to take the final step and fund the trust with their assets.
When this happens, at the time of administration it means that the trustee, who may think he/she has authority over certain assets, in reality has no authority at all.
If a trust is not funded, then it does not hold title to any of the settlor’s assets at the time of death. Which means that the trustee will have no control over any of decedent’s assets, because a trustee can only control assets properly titled in the name of the trust. In turn, this means that decedent’s property cannot pass according to the terms of the trust and instead may be subject to probate.
Because probate is a time-consuming and expensive process, having decedent’s assets subject to probate instead of passing through a trust is not a good thing. Worse, this type of scenario could lead to decedent’s assets going to his/her creditors rather than his beneficiaries.
Importantly, a critical duty of any trustee at the beginning of his or her commission is to accurately identify and secure all trust assets.
So what happens if the trustee finds out that in fact, he has no authority over the settlor’s assets because they were never transferred into the trust?
The first thing a trustee should do is to consult an experienced estate and probate lawyer. If decedent had a pour-over Will, that may help some, but in most cases, this common problem will need court intervention to fix.
Allegations of mismanagement
This common problem is indeed a serious one for any trustee.
In fact, it is one of the main reasons why anyone accepting the position of successor trustee should think very carefully before accepting and should absolutely seek assistance and guidance from an experienced trust lawyer. Also, before accepting the position as successor trustee, be certain that you are qualified and can, and will, perform all the duties of a trustee—fully, promptly, and correctly.
Administering a trust calls upon the trustee to perform a number of important tasks, such as:
- making investment decisions
- arranging for maintenance of real estate
- buying insurance for trust assets
- hiring professionals
- filing tax returns
- paying taxes
- representing the trust in litigation
Trustees must be able to do all of the above—and more—and he must also be able to make distributions to beneficiaries in accordance with the trust’s terms. In some cases, this means the trustee has considerable discretion in when and how much to distribute. In other cases, the trustee has little to no discretion. It all depends on the terms of the trust. Either way, a trustee must be prepared to handle trust assets and follow the terms of the trust instrument.
Given the complex and various duties of a trustee, it is not uncommon for beneficiaries to allege that a trustee has not properly handled trust assets or has failed to properly maintain trust property. In many cases, lack of communication with beneficiaries can lead to such allegations or disagreements as to how trust property should be handled.
Trustees facing allegations of mismanagement should contact an experienced trust lawyer.
Unhappy beneficiaries can contest a trust agreement much in the same way they can contest a Last Will & Testament (“Will”).
Beneficiaries may not agree with the appointment of a certain person as trustee of the trust. Or, they may object to the terms of the trust.
A trustee facing a trust contest should seek the help of a trust lawyer.
Deceased or incapacitated beneficiaries
Another common problem trustees encounter when administering a trust is discovering that a beneficiary is either incapacitated or dead.
Unless the trust has addressed what to do if this happens, it will be important to seek the assistance of an experienced trust and probate lawyer, because these issues will need to be addressed in the probate court before the trustee can continue to administer the trust.
It is not unusual to encounter any number of problems when administering a trust. All trustees should always consult a trust and probate lawyer before taking on the administration of a trust.
Estate Planning by Florida Estate Planning Lawyers
At SJF Law Group, we work hard to ensure that your wishes will be followed, and your loved ones taken care of when you are gone. When you work with the estate planning attorneys at SJF Law Group, you get more than just an estate plan: you get peace of mind. We expertly guide individuals through the complex probate process, and capably handle all aspects of the creation, administration, and settlement of trusts as well. Contact us here or email us at: [email protected].