Tag Archives: trustee

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Pretty young lady in her 20s with white blouse is sitting reading a book. Perhaps her parents are helping support her now. But what will happen in the future after her parents have passed away?

Will my kids be able to enjoy the same lifestyle?

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“Will my kids be able to enjoy the same lifestyle as me?” That’s a question that many people worth $10 million U.S. or less have. How do I know this? Because I’ve been an estate planning attorney since 2001. A number of my clients are worth around $10 million. If your net worth is around $10 million, you’re pretty well off. But you’re not quite well off enough to put your children in a position that they will never have to work. (This is mentioned in a 2014 article in The Telegraph.) Also, if you’re living off investments, you realize that there’s always a risk that your investments could shrink in value.

But here’s the good news. There is something you can do. At least help your kids get the most benefit from their inheritance. The fact is that most kids of wealthy families squander their inheritance. However, I do have a couple of practical suggestions for you. Now I’m not a fan of quick fixes because usually they don’t work. But here are a number of specific things you can do to help ensure that your kids will be able to enjoy a good lifestyle after you’re gone:

Don’t give the money to your kids immediately when you’re gone.

It’s so common to have a will or trust that says something like “After I have died, I want everything to go to my children equally.” This might work for a very modest estate. But if your estate is worth over $500,000 I would draft the will or trust so that your wealth remains in trust for your kids’ benefit. They can receive discretionary distributions. You will have a neutral trustee to administer the trust. The trust language will encourage your kids to continue to be productive. This will help make the money last as long as possible. WHY IS THIS IMPORTANT?  Because this is the only way to ensure that your kids don’t (a) squander their inheritance right away or (b) fight over how things are divided.

Be careful of Powers of Appointment.

One such potential landmine is what’s called a power of appointment. These are added to trusts for tax purposes. But they also allow the person with the power to change the beneficiaries. The result is it the love ones you want wanted to receive everything after you’re gone may end up getting nothing. (Obviously, your ability to help your kids enjoy the same lifestyle in the future is hampered if your wealth somehow gets transferred to someone else. You’d be surprised at how often this actually happens.) It’s probably best to have an estate planning attorney who also does probate litigation. Such an attorney is going to have a better idea of what actually works in the real world (in terms of drafting your trust and other estate plan documents).

Third, have an alternative dispute resolution provision in the trust and other documents.

Require that anyone who is to receive any benefits from the estate or trust agrees to at least attempt resolving issues without going to court. This will greatly reduce the likelihood of your loved ones having to hire attorneys to sort out legal issues after you’re gone.

Finally, make sure your trust appoints a trust protector.

his is a neutral person who can make changes as necessary. This is another way of preventing your loved ones from going to court to resolve conflicts. For example, if you choose one child to be trustee, maybe that child will make self-serving choices about dividing personal property (family heirlooms, etc.). This can cause enormous tension in the family. A trust protector can remove that child as trustee and insert a neutral trustee to dissolve the conflict.

This is just a short list of things you can do to help ensure that your kids will enjoy your same lifestyle after you’re gone. Having a neutral trustee is very important. People who suddenly come into money and up usually squandering it. There’s no perfect solution that fits every situation. But these are some steps that I have seen work time after time.

If you have any questions, call us at 602-443-4888 or email me at paul@magellanlawfirm.com.


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Trustee sister telling brother that she doesn't want to sell the house

Trustee Doesn’t Want to Sell the House

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We get this a lot: Mom or dad just died. House was in a trust. Now your brother or sister is in charge of the trust (as the trustee). The trustee doesn’t want to sell the house or distribute anything. What are you (the beneficiary) supposed to do? Here’s a checklist.

  1. Do you have a copy of the trust? (I’m not talking about a Certificate of Trust, or a deed to the house. I mean the actual 25 pages or more long trust document.) If you don’t have a copy of the trust, ask for one. If the trustee refuses to give you a copy of the trust, contact an attorney to figure out how to get a copy.
  2. Have a trust litigation attorney read the trust document and determine what is supposed to happen.
  3. Assuming the trust says the house gets sold and you are entitled to a share of trust property, how long has it been? What is in the house? If you have valuable antiques or artwork or collectibles, are those getting inventoried?  Is the house secured? A trust attorney can help you with these details and figure out what specifically needs to happen. In a very simple case, if there is nothing of value in the house, the contents can be quickly liquidated (or donated), the house cleaned up, and the house listed for sale within a month or two. Sometimes, however, it can take longer. It shouldn’t take 6 months in most cases to clean out a house and list it for sale. One year is too long (in most cases).
  4. Figure out if there’s a “No Contest Clause” in the trust. These can be danger, as discussed in a prior blog. You may need to take certain precautions before filing something with the court.
  5. Discuss the next steps with your lawyer. If there is a No Contest Clause, he or she might file a Petition for Declaratory Judgment to get the court to determine that you won’t be “contesting the trust” by seeking to get a new trustee. There are basically two options. First, you can try to get the court to order the trustee to do what is needed. However, sometimes it’s just quicker in the long run to get a more responsible person appointed as trustee. If you decide that’s the way to go, have your trust litigation lawyer prepare and file a Petition to Remove Trustee and Appoint Successor Trustee.

If the trustee is also living in the house, your lawyer will help you file an eviction (called an Unlawful Detainer). This takes longer than you might like. But generally, you can get the person removed within 45 to 60 days.

If you have any questions, call us for a free consultation. We’re here to help!

 

 


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Man and woman looking distraught

Naming a family member as trustee? Yikes!

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You go to an estate planning attorney to set up your will or trust. That attorney asks you who you want to be in charge of your affairs when you’re gone. You say you want your husband or wife or one of your kids to serve as trustee. Makes perfectly good sense of the time. And the attorney just want to get the answer so he can prepare documents and get paid. But it does it make sense to be naming a family member to serve as trustee?

At the time of writing this blog, our law firm is involved in representing a number of trustees who are accused of mismanaging trust property. We see how this can strain marriages, and cause irreparable harm to family relationships.

The fact of the matter is that most people don’t know how to handle their own money. Most people live paycheck to paycheck and and if they get control over any amount of money, they will figure out how to miss manage it.

You may think the world of your husband or wife or oldest child. But that doesn’t mean that person has a clue about all of the responsibilities required to administer a trust. The final tax return needs to get paid. The trustee needs to identify what property belongs to the trust, what property is payable outside the trust. What about personal property? How does it get distributed? Should the house get fixed up before getting sold or just get sold as is? Any wrong decision can result in personal liability for the trustee. In other words, you could be putting your loved one in a position of inadvertently making a mistake and having to pay the big bucks as a result.

To make matters worse, is there any possibility of family dissension? Is there any possibility that the other beneficiaries of the trust will be jealous of the person you choose to be trustee?

How about if the surviving spouse is either in control of the trust or has psychological influence over the person who serves as trustee? There’s a good chance that the surviving spouse Will try to figure a way out of paying any money to a stepchild or nonblood relative. I have seen this time and time again.

So what’s the solution? The answer really starts by either properly laying the groundwork so the family is all on board and there are sufficient checks and balances so whoever is managing the trust will be absolutely certain to do it properly. Or… You hire a neutral third-party to serve as trustee.

For wealthier families who have family offices, the family office can serve as trustee. But this requires that the entire estate plan is properly set up so that the surviving spouse or some other family member cannot somehow take over control of the family office. This requires checks and balances and proper organization.

What can you do to prevent a problem? If you have a trust, get a second opinion about whether it will actually work when you were gone. Here is a short checklist of things your trust absolutely, definitely needs to have:

1. Every trust needs to have a trust protector. Sometimes this person is called an independent trustee. The purpose is to have a neutral third-party who can remove and replace irresponsible or criminal trustees, and make other changes as necessary to the trust so that your wishes are carried out.

2. Require regular accountings. At a very minimum, this needs to be annually. Waving the requirement of an accounting is essentially a license to steal without any way for someone to find out before it’s too late.

3. Make sure multiple family members have copies of all of your trust documents. Otherwise, the person in control of the trust document may not be happy with it and could destroy it without anyone ever finding out.

If you have any questions about hooter name as trustee or how to prevent family squabbles when you’re gone, contact us.


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Recovering from Trustee Misconduct

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Recovering from Trustee MisconductBeneficiaries of a trust depend greatly on the trustee to act in the best interest of the beneficiaries and the trust.

Unfortunately, trustees don’t always live up to the duty and responsibility of their position. Beyond creating headaches for family members and other beneficiaries, such misconduct can rob them of their inheritance.

In previous posts we covered the actions that can led to the removal of a trustee [link to post on what qualifies trustee for removal] and how to petition the court to remove the trustee and appoint a successor.

After those important steps, how do you go get back the stolen or misused money? It all depends on whether you are able to trace where the money was sent, if it was spent or if it still exists in some form. Let’s look at an example:

If a trustee used money from the trust to buy a new house, and if that house has not been sold or transferred to someone else, you can get a court order to freeze the property and eventually have it transferred back to the trust.

If the money is gone, there are three ways to recover funds:

  1. Surcharge. This applies if the trustee is also a beneficiary of the trust. In this situation, the former trustee’s inheritance from the estate can be reduced by the amount of any judgment the court passes against him or her. To have a surcharge ordered on a former trustee, you must file what’s known as a “Petition for Surcharge” with the probate court.
  2. Seize assets. If you’re able to trace the trustee’s spending to existing assets (cars, jewelry or other property), or if you’re able to show bank statements showing cash the trustee’s withdrawals from estate funds at ATM machines, the court can place a judgment against the trustee, making it more likely that you will get the money back. If the trustee has spent money on intangible purchases such as vacations, it will be much harder to get the money back.
  3. Personal refund. If the trustee has other personal assets (such as a house or bank accounts), the court can order the former trustee to turn over those assets to compensate for the value taken from the trust.

The process of getting the money returned can be lengthy. It can take from three to six months or more to settle a case recovering losses. The court process involves gathering evidence, and filing a petition with the probate court (this is all part of the steps necessary to remove a trustee).

After the court determines the amount of damages caused by the former trustee, the new trustee or other beneficiaries can then request the court to make further orders. To give an example, let’s say that a former trustee, Roger, owned a house, which used to be owned by the trust. After Roger has been removed from the position of trustee, the court can order that the house belong again to the trust. An attorney for the trust can then get a certified copy of the order and record the ownership of the property with the county recorder in the county where the property is located.

If you’re dealing with a trustee who is mishandling a trust, don’t wait to seek help. An experienced probate litigation attorney can walk you through the tricky and complicated petitioning process. It’s important to have someone knowledgeable on your side who knows the law and the court system.

Your attorney should work closely with you and the court to help you recover lost funds that are justly yours. The probate courts are there to help you and your family. Remember to act quickly and seek the assistance of an attorney. This will increase the likelihood that you will recover your inheritance.

Have any questions about recovering from trustee misconduct? Give us a call. We’d love to help.

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How to Petition to Remove a Trustee

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How to Petition to Remove a TrusteeLGIn a previous post, we covered the things trustees do that can lead to their being removed from that position. After you’ve identified where a trustee has abused this position of trust, and as you seek to have the offending trustee removed, the next step is to petition the court for that removal, and to appoint a successor.

It’s important that you work with an experienced probate litigation attorney on the petition process. This area of law is complex (even for lawyers). If you are unfamiliar with probate litigation, you risk increased delays and costs if things aren’t filed or presented correctly.

A trustee can be removed either by the terms of the trust or by court order. If you need to remove a trustee, the first thing is to contact a probate and trust litigation attorney who can help you put together a plan for removing the trustee.

If the trustee can’t be removed under the terms of the trust, then this will have to be done by going to court. The petition to the court should include specific details explaining why the trustee should be removed. If possible, include evidence to support your case (usually documentation such as copies of checks made out to the trustee or other evidence of the misuse of the trust’s funds or assets).

Your attorney will review the case to determine if your situation qualifies as an emergency (this can speed up the process in cases where the trustee is spending money or otherwise reducing the value of the trust).

Here’s an example of one such emergency case:

One family had a large amount of gold bullion owned by the trust. The bullion was kept in a safe in the home of the family member who was managing the trust.  Other family members noticed that the trustee had bought several new cars and expensive jewelry for his wife. The family suspected the trustee of using the bullion to fund these extravagant personal purchases.

After reviewing the case and gathering evidence that showed exactly those things, I helped the family petition for emergency status to remove the trustee. We were able to get an immediate court order freezing the assets and requiring that the remaining gold bullion be transferred to a secure storage facility.

Although you need to gather evidence of wrongdoing once you notice something wrong, the funds may not be returned. It is extremely difficult to recover money once it’s been spent. Waiting and hoping things work out rarely works out well. It’s better to take immediate action if you think a trustee is acting improperly.

Don’t be afraid to consult an attorney. Look for one who will work to protect the value of the trust while exploring ways to resolve disputes.

If you have any questions about removing a trustee or need help protecting your inheritance from an ineffective trustee, comment below or contact our office.

We’d love to help.

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How to Remove a Trustee

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How to Remove a TrusteeNot everyone works out. And you have the right, as a beneficiary of a trust, to petition to remove the trustee of the estate if he or she proves to be incompetent, hostile, dishonest or otherwise unable to fulfill the responsibilities of administering the trust.

Here’s a quick definition of a trustee and a summary of the duties of the position.

A trustee can be a person (or a trust company) who has legal title to property, who holds that property for the benefit of another and who has assumed a legal duty (also called a fiduciary duty) to act in the best interests of the beneficiaries of the trust. As you can imagine, things can go awry.

Here’s an all too-frequent scenario from a recent case:

In a case involving a prominent Phoenix family that operated multiple businesses owned by their trust, the father had passed away a number of years earlier. The mother continued running the businesses, gradually turning over control to her adult children. One of the sons took control of the trust after the mother developed dementia.

The son used the money from the trust to enhance properties he would ultimately inherit. He also bought himself a new car and started taking lavish cruises and vacations.

My clients – the siblings of this trustee – turned to me for help. First they obtained evidence of wrongdoing. In this case, they were able to get copies of checks written from the trust directly to the trustee. This gave us enough to petition the court and get the son removed as trustee and replaced with a private fiduciary.

Trusts can be set up to allow for safeguards in case of wrongdoing. That is, they contain trigger points that can lead to the removal of a trustee.

For trusts that don’t specify a mechanism to remove a trustee, the court recognizes other reasons. Here are three:

  1. If the trustee has committed a breach of the fiduciary duties of care over the assets or loyalty to the beneficiaries. Examples include failing to pay taxes, stealing assets, and not following the specifications of the trust.
  2. If the trustee is unfit, unwilling or persistently fails to act in the best interest of the beneficiaries and the trust, the court can remove the trustee.
  3. In come cases, the circumstances surrounding the trust can change significantly or all qualified beneficiaries can request the removal of the trustee. The court can review the case and remove the trustee if it deems this for the best interest of the beneficiaries, as long as this isn’t inconsistent with the original specifications and intent of the trust.

If you are the beneficiary of a trust, it’s important to know what to do if the assets are being mismanaged. Trusts are normally very private affairs. In addition, trusts, being civil matters, are outside the jurisdiction of the police. There’s typically no court supervision and no government regulation to make sure that the trust is being run properly. It’s up to you and your attorney to pay attention to how a trust is being managed.

You need to take immediate action if you believe money is being misused. Proactive action increases your ability to protect your inheritance. Contact an experienced probate attorney at the first indication that a trustee is unethical or irresponsible with trust assets.

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Pitfalls of Estate Planning: When Assets Are Used for Personal Benefit

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When Assets Are Used for Personal BenefitA trustee must never use the assets of a trust for personal benefit (unless this is specifically permitted by the trust). There’s really no wiggle room here. Trustees are held to the highest legal standards.

If you’re serving as a trustee, conservator or guardian, it’s important to clearly understand the duties of your position to be certain that you are performing your duties correctly and to protect yourself and reduce your liability in case of error.

Most cases where assets are mismanaged involve trusts. This is because trusts are normally unsupervised. As a result, it’s not uncommon for a trustee to neglect providing beneficiaries with annual accountings or to keep detailed bookkeeping records. Laws vary by states, but in Arizona, current law requires that a trustee give annual accountings and provide beneficiaries sufficient information to protect their interests.

Some trustees, unfortunately, take the breach of duty further and use an estate’s funds for their personal use. Taking family vacations, buying cars or paying off a personal mortgage are all examples where a trustee has breached fiduciary duty by misusing trust assets.

Here are the three biggest mistakes trustees make when managing trust assets:

  1. Failing to keep records.
  2. Taking unauthorized personal “loans” from the trust.
  3. Using assets for personal use – and thinking they won’t get caught.

A trustee who mismanages trust assets—whether intentional or unintentional—can face severe legal consequences. But you should know that if you’re serving as a trustee and don’t understand your responsibilities and duties, you don’t have to do it alone. An attorney with experience in trust management can help you avoid making costly mistakes and ensure that you’re aware of your responsibilities.

From the other side, if you’re a beneficiary and you suspect the trustee is mismanaging assets, don’t wait to take action. Seek legal counsel from a skilled probate attorney.

Settling an estate is a complex process. Probate court offers resources and recourse for those who are working to settle a loved one’s estate. We’d love to help make this process easier for you and your family. Give us a call with any questions about how you can properly manage a trust, and what you can do when trust assets are being mismanaged.

In the next post, we’ll look at how to deal with estate conflict in probate disputes.

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Administering a Trust with an Ongoing Business

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Administering a Trust with an Ongoing BusinessAdministering a trust with an ongoing business can be intimidating and overwhelming. It is even more tricky if the business needs to go through probate. And for good reason.

As a trustee or personal representative, you will be held to a high standard as you administer the trust, a standard higher than that the original owner was held to. And if you have specific knowledge (such as having owned a business before, being an attorney or CPA) you will be held to a higher standard still.

Here are three steps you can take as a trustee or personal representative that will help you better manage your responsibility as well as reduce your liability as you administer an estate or trust that has business or complex investments:

  1. Assemble a team. Even if you have experience with owning and operating a business or in managing an investment portfolio, you can be held accountable for making decisions that have a negative impact on the viability of the trust’s business or assets. Seek help from qualified professionals (CPA, probate attorney with experience working with businesses and other relevant advisors.)
  2. Delegate control. You need to find a qualified person to take responsibility or accountability for his or her actions in managing this business and operating it. That person must be committed to making the right decisions, even difficult ones such as firing family members. (This in particular is a common and difficult decision that must be made with a number of trusts.)
  3. Maintain communication. As personal representative or trustee, it’s your responsibility to keep beneficiaries informed of the state of the business or other assets.

Passing along the commitments and responsibilities of a business and business assets through a trust can be complicated. The trustee or personal representative who administers the estate should understand the responsibilities of the position.

Without information, knowledge and expertise needed to run a business profitably, the trustee can be held liable for a decline in the business. Assembling a team and delegating control are two critical steps a trustee should make to maintain and manage the assets. Be sure to keep the beneficiaries informed and in the loop regarding the state of affairs.

If you need help understanding the duties of a trustee and how to manage a business or other complex assets in a trust, we’d love to help.

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Trust Management: 3 Top Mistakes Trustees Make

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Trust Management 3 Top Mistakes Trustees MakeServing as a trustee is a big responsibility that can be complicated and confusing. It’s easy to fall into trouble if you’re misinformed or careless in the trust management. Keep in mind these three pitfalls when serving as trustee:

  1. Breaching fiduciary duties. Fiduciary duty is the highest legal duty of care recognized by the U.S. legal system. The most common example of breaching duties is when a trustee uses the trust to pay for personal expenses or purchases.
  2. Failing to keep beneficiaries informed. Trustees have the duty to keep beneficiaries “reasonably informed about the administration of the trust and of the material facts necessary for them to protect their interests.” Thus, beneficiaries are entitled to periodic accountings showing investments, disbursements and expenses. If a trustee is not transparent with these actions, he or she may be subject to legal action.
  3. Breaking the law. This can involve theft – the most common way a trustee may break the law – or the failure to pay taxes.

A trustee who doesn’t act in the best interest of the trust may be subject to consequences in civil court. The most common of these – for trustees who are also beneficiaries of an estate – is a surcharge, which is a legal term under probate law for a type of lawsuit that will reduce the trustee’s portion of the inheritance to return any losses to the trust that have been incurred because of mismanagement by the trustee. A trustee can also be personally liable for losses resulting from mismanaging assets in the trust.

If you’re concerned that a trustee is mismanaging your loved one’s trust, it’s important to seek help  immediately from an experienced probate attorney.

Many people want to avoid going to court to resolve their probate issues, but probate court exists to help families sort through the process of settling an estate. In fact, probate court can be particularly beneficial when a trustee is either a family member or a friend, because emotions and stress can complicate these situations.

If you’re a trustee and feel over your head in fulfilling your duties, attorneys can help you avoid pitfalls. You don’t have to do it alone. Consider hiring an attorney, bookkeeper, accountant or even a corporate trustee to work with you. A little bit of help can prevent not only mistakes but undue stress during an already-stressful time.

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Estate Planning: What Are the Duties of a Trustee?

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Estate Planning What Are the Duties of a TrusteeMost people feel honored when asked to be a trustee over a friend or loved one’s estate. But being a trustee is more than a title. It comes with a lot of responsibility and obligation.

The general duties of a trustee vary depending on the laws of the state where the trust is situated. But to provide you with an overview, here are the duties of a trustee based on Arizona statutes, where I practice:

1. Duty to administer. The first duty of a trustee is to administer the trust in good faith and, according to its terms and purposes, in the interest of the beneficiaries, according to Arizona statutes,. This involves reviewing the trust document or trust instrument to determine how the trust is to be administered, how debts are to be paid, etc.

2. Duty of loyalty. The trustee has the duty to administer the trust solely in the interest of beneficiaries. This means the trustee should not use the trust as a source of funds for personal activities or investments (thus, no gambling or buying speculative businesses). All expenditures should be solely in the interest of the beneficiaries.

3. Duty of impartiality. If the trust has two or more beneficiaries, the trustee must act impartially when investing, managing and distributing trust property, giving due regard to the beneficiaries’ respective interests

4. Duty of prudent administration. The trustee should administer the trust in a reasonable and prudent manner. This means not making haphazard or random choices when choosing investments, managing business or managing assets.

5. Cost of administration. The trustee may only incur costs that are
reasonable in relation to the trust property. For example, it may be
reasonable to hire an attorney and spend $50,000 to fight a lawsuit if it’s for a multimillion-dollar trust. Obviously, that would not be prudent for a
$60,000 trust.

6. Duty to use special skills. If a trustee has special skills or expertise, it’s the trustee’s duty to use them to benefit of the trust. If you’re a CPA or an attorney, you’re expected to use your skills and training for the trust.

7. Delegation. As a trustee, you must delegate duties, and exercise reasonable care, skill and caution when it comes to selecting an agent. You must also establish the scope and terms of that delegation and periodically review the agent’s actions and performance.

8. Duty to control and protect trust property. It’s important to make sure assets aren’t stolen and to guard against the waste of assets.

9. Duty to keep records and identification of trust property. This is both a protection for a trust and for the trustee. Keeping good records will make it simpler when preparing taxes.

10. Duty to collect trust property. The trustee must identify the trust property so things don’t get lost and stolen.

11. Duty to inform and report. The trustee is responsible for keeping the qualified beneficiaries of the trust reasonably informed and responding to requests from beneficiaries regarding the trust.

12. Discretionary powers and tax savings. These powers provide the trustee with options in order to accommodate varying situations.

As you can see, this is a big job. But that doesn’t mean you have to do it alone. You have the right (and duty) to seek expert help to make sure things are handled properly. If you have any questions about your duties as a trustee, I’d love to help. Leave your question below or contact our office.

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