5 Mistakes Made by Successor Trustees (and How to Prevent Them)

Once a trust is established, a successor trustee needs to be chosen to administer the trust once you are not able to any longer. Careful and serious thought needs to go into choosing your successor. This person should be

  • Trustworthy. The successor needs to be someone you trust completely.
  • Organized, Responsible and Meticulous. The successor also must be organized and meticulous in order to properly administer your trust.
  • Steadfast. The successor must stay steadfast to your plan even when family disagreements or other disputes arise.

Even if you choose the best person in the world, mistakes can happen. Mistakes in managing the trust can be made by a well-intentioned and capable successor trustee but here are some steps that can help in preventing it from happening.

 

  1. Faulty Record-keeping

Incomplete or inaccurate records can lead to costly and lengthy court battles because someone decided to challenge the trust. Accurate and detailed records of all income and distributions need to kept so the trust fulfills its purpose and is not contested. Reports need to available to all beneficiaries and heirs of the income and distributions of the trust on a regular basis.

 

To prevent this mistake: Hire an accountant and be sure the trustee and accountant meet before the trustee takes over the trust. An accountant can assist the successor trustee with record keeping and prevent faulty record keeping.

 

  1. Misunderstanding the Fiduciary Role

The trustee’s job is not to act in the best interest of the one setting up the trust but to act in the best interest of the beneficiaries of that trust. This can be an easy mistake to be made. Bad investment advice given to the beneficiaries regarding the trust can be the legal liability of the trustee because the trust was not protected.

 

To prevent this mistake: Be sure the trustee understands their role and include the fiduciary role of the successor trustee in the trust documents.

 

  1. Not Collaborating Effectively with Your Established Financial Team

Communication problems between the successor trustee and key members of the financial team can cause inaccuracies, misunderstandings and financial losses.

 

To prevent this mistake: Introduce you trustee to anyone connected with the trust. Be sure a connection has been made between the trustee and the attorney, CPA, financial planner before taking over the administration of the trust.

 

  1. Failing to Discuss Compensation

Compensation needs to be discussed and not just glossed over or forgotten. Sometimes when a close friend or family member is the successor trustee that topic is never discussed. This can then lead to resentment and a lack of morale if the management of the trust gets difficult or time consuming.

 

To prevent this mistake: Talk about compensation, make an agreement and put it in writing. To make the arrangement more enjoyable for the trustee, be generous with the amount of compensation according to the amount of time and stress predicted for the trust management.

 

  1. Failing to Remain Objective

Choosing a family member as trustee is usually the first choice and sometimes is the best if privacy matters. Sometimes having a family member as a trustee can lead to money disputes even in the tightest-knit family. It can be hard for that family member to remain neutral when this happens and can lead to decisions that family members believe are unfair. The trustee can also end up being inconsistent with the original plan of the trust because of disagreements.

 

To prevent this mistake: Be sure you choose someone that can stay neutral and faithful to the trust. If you feel they cannot under duress and disagreements, hire a corporate trustee that has no emotional connection to your family or estate.

 

For advice and council with choosing a successor trustee, call our office today and schedule a private appointment. This is one of the most important decisions to be made regarding your estate planning process.

 

Previous
Next

Comments are closed.