The Trustee of a trust plays a crucial role in managing and administering the trust, ensuring that the trust’s assets are handled according to the trust agreement and that everything done during trust administration is done with the best interests of the beneficiaries in mind. If you were appointed to be a Trustee, you should understand that you are acting in a fiduciary capacity during the administration of the trust. Because it is another crucial aspect of serving as a Trustee, the attorneys at Wilcox Attorneys, PA explain Trustee liability for mistakes made during the administration of a trust.
Understanding the Role of a Trustee
A Trustee is a person or entity appointed to manage and administer the assets of a trust. The Trustee’s duties are numerous and varied including things such as investing the trust assets prudently, distributing income or principal to beneficiaries as stipulated in the trust agreement, and maintaining accurate records. Among a Trustee’s fiduciary duties are:
- Duty of Loyalty: The Trustee must act solely in the best interests of the beneficiaries, avoiding any conflicts of interest.
- Duty of Care: The Trustee must manage the trust assets with the same care and skill that a prudent person would use.
- Duty to Follow the Trust Terms: The Trustee must adhere strictly to the terms set forth in the trust agreement.
Mistakes That Can Lead to Trustee Liability
As a Trustee you are not expected to be perfect – mistakes can and do occur and you will not face legal liability for honest mistakes. You can, however, face legal liability under certain circumstances, such as:
- Breach of Fiduciary Duty: Failing to adhere to any of the fiduciary duties of a Trustee can result in a breach of duty that might expose a Trustee to personal liability. Self-dealing, for instance, leads to liability for a Trustee. Self-dealing occurs when a Trustee uses trust assets for personal gain. For example, if a Trustee entered into a contract between the trust and a company owned by the Trustee and the terms of the contract clearly favored the Trustee and were not in the best interest of the trust, that would likely be seen as self-dealing and would open the Trustee up to personal liability.
- Negligence and Mismanagement: Negligence and mismanagement in trust administration occur when a Trustee fails to perform their duties with the level of care, diligence, and competence that a prudent person would exercise in a similar situation. Unlike intentional breaches, these actions may stem from oversight, lack of knowledge, or poor decision-making processes rather than malicious intent; however, the consequences for the trust and its beneficiaries can be equally severe, and a Trustee can still be held personally liable for such failures.
How Can I Avoid Being Held Personally Liable for Mistakes When Serving as a Trustee?
The single most important step you can take to avoid facing personal liability for mistakes you make while acting as a Trustee is to work with an experienced trust attorney as well as an established financial advisor throughout the duration of the administration of the trust. The advice and guidance of professionals will be invaluable to you when acting as a Trustee and will dramatically decrease the likelihood of making mistakes that could open you up to personal liability. If you are unsure about how to proceed at any point during the administration of a trust you may also be able to seek court approval. This preemptive move can provide legal protection if your actions or decisions are challenged down the road.
Do You Have Additional Questions about Trustee Liability?
For additional information, please sign up for one of our FREE estate planning webinars. If you have additional questions about Trustee liability, contact the experienced Washington County, Fayetteville, Springdale, Rogers, Bentonville, and Northwest Arkansas estate planning attorneys at Wilcox Attorneys, PA by calling 479-443-0062 to schedule your appointment today.
Learn more about Audra here