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Trust Administration

i. What is trust administration?

As the trustee or executor of a trust, your responsibilities include, among other things: collecting and safekeeping assets; investing principal appropriately; paying expenses of trust administration; preparing relevant tax forms; defending the provisions of the Trust against any litigation; contacting beneficiaries; taking a complete inventory of the estate and appraise all cash and non-cash assets; distributing income to the income beneficiaries and at Trust termination; and distributing principal assets to the remaindermen.

ii. What standard of care exists for a trustee?

Generally, a trustee has the highest duty imposed by law to the beneficiaries. This duty, referred to as a fiduciary duty, means that the trustee must always act in the best interest of the beneficiaries, free of conflict of interest and self-dealing. If the trustee’s personal interest is in conflict with that of the beneficiary, he/she should immediately seek legal representation, discuss it with an attorney and the attorney must decide whether it is appropriate for the trustee to either seek clarification from a court or court approval for certain trust actions.

The trustee must manage and invest assets prudently as if they were their own. A trustee is free to delegate tasks and responsibilities, but the trustee must be prudent and careful about selecting advisers.

A trustee may not delegate in whole, his fiduciary responsibility to any third person unless this trust expressly allows for such delegation.

The trustee must keep all beneficiaries reasonably informed of the activities of the trust and prepare accountings in appropriate format to the beneficiaries as outlined in the trust instrument. There may be additional beneficiaries whom the beneficiaries may also have to account for upon request to provide similar such information. The trustee must make sure that the assets are made productive, and the trustee must deal impartially with all beneficiaries and not favor one class of beneficiaries over another unless expressly provided for in the trust instrument.

The trustee must file appropriate tax returns in a timely manner, and must distribute income and/or principal according to the terms of the trust.

iii. Can a trustee be held personally liable for failing to properly do his/her job?

Absolutely. A trustee can be held personally liable in the form of a surcharge, for committing waste or essentially having a trust lose money as a result of improper acts or lack of action on the part of a trustee. A trustee can only be forced to disgorge any profits if he or she acts in a conflict of interest benefiting himself or others.

How should a trustee minimize or prevent personal liability in administering its fiduciaries duties? Because trust cases can be extremely complex, and the character of assets may be very diverse, each trust administration really requires solid legal advice to make sure the trustee is acting properly at all times.

iv. What are some of the common complaints brought against trustees?

Many cases are brought against trustees because of the following:

  1. Little or no communication between the between and beneficiaries. No annual meetings or reports and no accountings.
  2. Inaction. Failure to make timely distributions and/or failure to make timely liquidation and monetization of assets where called for under the terms of the trust.
  3. Conflict of interest. Trustees buying or attempting to buy property or otherwise take advantage of assets within the trust for their personal benefit, for the benefit of their personal relatives to the exclusion and detriment of other beneficiaries.

In short, if a trustee is uncertain about a proper course of action it is imperative that they immediately seek proper legal counsel to make sure that they are not breaching their fiduciary duty to the beneficiaries and thereby subjecting themselves to personal liability, liability that may far exceed any trustee fee or commission that they are entitled to under the law and/or any portion of the trust that they are entitled to under its own terms.

v. Can a fiduciary or administrator of an estate be removed?

The courts, and of course, the beneficiaries, take proper administration of the estate very seriously. It’s not uncommon for an administrator to try to voluntarily remove themselves when they find themselves unable to deal with the duties at hand. It’s also possible for an administrator to be involuntarily removed by the courts if they are deemed to be causing harm to the estate either through improper or prejudicial action, or even through a lack of action.

vi. What if my duties as a fiduciary or administrator of an estate are unclear under the given trust instrument?

Often times, a fiduciary, such as a trustee of a trust or personal representative of an estate, may need instructions to be given by the court in cases where it is unclear what the proper scope of duties and/or responsibilities are under a given trust instrument.  Although the court cannot properly sit and give protection to a trustee in administering its duties in the normal course of events, there are circumstances which arise from time to time, in which there is a legitimate legal “gray area” in which the trustee may be forced to proceed.   In that event, our firm will assist with your filing a petition for instructions with court and ask for as much guidance from the court as possible, so that the trustee can act properly and confidently without threat of attack from potential disgruntled beneficiaries or heirs.

vii. Can I ask the court to deviate from the expressed terms in the trust instrument?

Sometimes it is necessary for a fiduciary to ask a court to deviate from the expressed terms of a trust or will.  This may be for a variety of reasons, including, but not limited to, change in circumstances of beneficiaries, change in circumstances in the nature of the bequest, such that following the literal meaning of the instrument may be difficult or impossible.  In these types of petitions, the law firm would seek a change in the language of the instrument which, although different from the expressed terms of the trust or will, most clearly matches the settlor’s intent, given the present facts and circumstances that the fiduciary faces.  Petitions for reformation or deviation of trust instruments are sometimes required in order to correct a scrivener’s error or mistakes in technical drafting.

viii. What if it is necessary to sell real property of the estate?

Often times it is necessary for a fiduciary to sell real property.  In the trust context, it may be possible to obtain court approval of a sale and, after giving notice to all interested parties, the trustee can appropriately go forward and conclude a sale in the terms and conditions outlined in a petition.

Similarly, during the probate administration of an estate, a Personal Representative must gather assets and pay the debts of the estate in such a way that will permit the beneficiaries to receive the maximum inheritance. A Personal Representative may be urged to sell property of the estate in order to pay debts, or he or she may be directed by the provisions of a will. The sale of probate property may be subject to court approval.

ix. What about probate administration?

Probate administration involves the winding up of a decedent’s estate. This process may be done informally or formally with court supervision. During this process, a Personal Representative must account for decedent’s assets, pay creditors and settle all claims, and then disburse the assets to beneficiaries in accordance with the decedent’s will. A Personal Representative may also be responsible for filing a tax return on behalf of the estate and paying the estate tax. Like a trust administrator, the Personal Representative acts in a fiduciary capacity and may be held liable to any loss suffered as a result of his or her failure to properly administer the estate.

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