Wednesday, February 15, 2012

Five Tips for Trustees

We represent trustees and being a trustee is a job with tremendous responsibility. Since trusts have become popular estate planning tools, we have seen numerous instances where they are traps for the uninformed trustee. The trust has specific wishes and demands and expects that they will closely followed, and it is the trustee's duty to make sure that happens.

Being a trustee can be a thankless job. It can subject even the most honest person with good intentions to litigation. If you are asked to serve as trustee, weigh your decision carefully since a trustee's duties may become complicated and mired in disputes.

Here are tips that we give our trustee clients:

1. Read the trust with the aid of a trust attorney. Since the trustee is required to administer the trust according to its terms, reading all the terms of the trust and understanding the terms is important. Not all trusts are the same and in many cases it is important that the trustee read the document carefully and be assisted by an attorney familiar with trust administrations.

2. Provide annual accountings. Certain trusts are specific as to what the trustee may receive as compensation (for example, a fixed fee or a percentage of the value of the assets). But some trusts only provide for "reasonable compensation" to be paid to the trustee which can mean different things to different people. To avoid problems, keep track of the hours you spend on trust-related duties. If there is a dispute regarding compensation, be prepared to show the actual amount of time devoted to trust matters.

California Probate Code Section 16062 requires a trustee to provide the beneficiaries with annual accountings that explain the trust's income and expenses. Once the accounting is finished, serve it on the beneficiaries immediately since service triggers the three-year statute of limitations. For example, if a trustee does not serve the accounting, the statute of limitations for filing a challenge will not begin to run.

3. Track inventory. Do not assume the trust is in effect because the documents have been signed. Make sure the assets in questions were actually transferred into the trust and vested in the name of the trustee. If this has not been done, exercise best efforts to bring the trust's assets in to the trust as soon as possible. Locate all potential trust assets, and determine whether any that have not yet been transferred to the trust can still be included.

4. Get good legal advice and insurance. The best protection against a potential lawsuit is to get good legal advice and to purchase an insurance policy covering errors and omissions. Without insurance coverage, a trustee's personal assets could be at risk if an unhappy beneficiary files a lawsuit.

5. Remain neutral. Lawyers such as myself who are asked to serve as trustees are often caught in the middle. On the one hand, I will serve the trustee's interest as set forth in the trust instrument. On the other hand, I must pay attention to the interests of the beneficiaries who probably include close family and friends of the trustee. The same applies to laypersons who serve in this capacity.

The trustee's actions will be watched and possibly challenged by any beneficiary who feels he or she was treated unfairly.

There is an exception to the need to remain neutral and that is when the trust is revocable (such as while the settlor is still alive). In that situation, the trustee's duty is to the settlor and not the remainder beneficiaries; the trustee should act only in the settlor's best interest. Estateof Giraldin, 199 Cal.App.4th 577 (2011).

If you are the trustee, it may not be possible to avoid litigation but if you follow these tips it will help you avoid litigation traps. If you are a trustee and need legal advice on how to fulfill your duties, feel free to contact us.

Posted by Henry (Hank) J. Moravec, III, a partner at Moravec, Varga & Mooney, A Partnership.
For a complimentary 30 minute consultation (telephonic or in person), you can e-mail Hank Moravec at hm@moravecslaw.com or call him at (626) 793-3210 or (818) 769-4221.
The firm website is http://www.moravecslaw.com/.

The San Gabriel Valley office is located at 2233 Huntington Drive, Suite 17, San Marino, California 91108.