Serving as a trustee is a significant responsibility that requires careful management of assets and adherence to legal duties. While fulfilling this role, trustees can face challenges, including potential legal liability. Understanding how to protect yourself as a trustee is essential to managing the trust effectively and minimizing risks.
Understand Your Fiduciary Duties
As a trustee, you have a fiduciary duty to act in the best interests of the beneficiaries and the trust itself. These duties include:
- Duty of Loyalty–Always prioritize the beneficiaries’ best interests
- Duty of Care–Manage trust assets prudently, making informed and responsible decisions.
- Duty of Impartiality–Treat all beneficiaries fairly, even if their interests conflict.
Failing to meet these obligations can expose you to legal claims, so a clear understanding of your duties is the first step to protecting yourself.
Maintain Accurate Records
Proper record-keeping is one of the most effective ways to shield yourself from disputes or claims. Ensure you:
- Document all transactions involving trust assets.
- Keep detailed records of communications with beneficiaries.
- Maintain a comprehensive inventory of the trust’s assets.
Good documentation demonstrates transparency and can validate your diligent management if questions arise.
Communicate Regularly with Beneficiaries
Clear and consistent communication with beneficiaries is essential. Keep them informed about the trust’s activities, including:
- Financial statements and investment updates.
- Distributions and their timing.
- Any significant changes or decisions regarding the trust.
When beneficiaries feel informed, they are less likely to question your actions or motives, reducing the likelihood of disputes.
Seek Professional Advice
Trustees are not expected to be experts in every area of trust administration. To fulfill your duties effectively, consider seeking advice from:
- Attorneys for guidance on legal compliance and dispute resolution.
- Accountants to assist with tax filings and financial management.
- Financial advisors for investment decisions and portfolio management.
Relying on professionals not only improves the trust’s management but also provides a layer of protection, as courts often recognize the trustee’s good faith efforts to seek expert advice.
Separate Trust Assets from Personal Assets
One common pitfall for trustees is mixing personal assets with trust assets, a practice known as “commingling.” To avoid this:
- Open separate bank accounts for the trust.
- Ensure all trust-related expenses and income are handled through these accounts.
Keeping the trust’s assets separate from your own helps maintain clarity and prevents allegations of mismanagement or personal gain.
Your Right to Compensation
As a trustee, you are entitled to reasonable compensation for your services. Familiarize yourself with the trust document and state laws to determine:
- The compensation structure outlined in the trust.
- Whether additional approval is required for fees.
Ensuring transparency with beneficiaries about your compensation can help prevent misunderstandings or disputes.
Consider Liability Insurance
Liability insurance for trustees can provide an additional safety net. This type of coverage can protect you against claims of breach of fiduciary duty, errors in management, or other disputes. While not always necessary, it’s worth discussing this option with an attorney or insurance professional to evaluate its benefits for your situation.
Know When to Step Aside
There may be situations where continuing as trustee is no longer feasible or in the trust’s best interest. For instance:
- Conflicts of interest–If personal relationships or financial interests interfere with your duties.
- Complex trust issues–When the trust’s complexity exceeds your expertise or resources.
In such cases, stepping down and allowing a professional trustee or co-trustee to take over can safeguard both the trust and your personal interests.
How OC Trial Group Can Help
Managing a trust is a demanding role, but you don’t have to handle it alone. At OC Trial Group, we provide trustees with the legal support they need to fulfill their responsibilities and protect themselves from potential risks. Whether interpreting trust terms, resolving disputes, or understanding your fiduciary duties, our experienced attorneys are here to guide you. If you’re serving as a trustee or considering taking on this role, contact us today for tailored advice and comprehensive support.
OC Trial Group, APC, are top-rated attorneys based in Orange County, with offices in Newport Beach and San Juan Capistrano. We also serve clients throughout California, including Westminster, Tustin, Irvine, Buena Park, Laguna Hills, Fullerton, Newport Beach, Fountain Valley, San Juan Capistrano, Costa Mesa, Garden Grove, Stanton, Cypress, Anaheim, Mission Viejo, Laguna Niguel, Brea, and Dana Point.