Common Issues with Trust Administration
Trusts are one of the most important and versatile tools in estate planning. Not only do trusts allow one to pass on their property and financial accounts while avoiding probate, however, trusts also protect assets, reduce taxes on the assets, and can delay the distribution of assets to beneficiaries if desired.
Though trusts offer many benefits, trustees—the person appointed to look after and distribute the assets within a trust—can run into many problems when administering the trust. Certain trust administration issues can be entirely avoided or easily fixed by meeting with a knowledgeable and experienced estate planning attorney. However, there are a few common issues that trustees face when administering a trust that can occur even if a lawyer is involved in the process.
Understanding Trust Administration
When you are appointed as the trustee or successor trustee to a trust, you will administrate the trust after the person who creates the account dies. Every trust has a list of beneficiaries and ways in which the person who created the trust would like to have the assets within the account distributed. However, to ensure that there is no confusion, the trustee should talk to the person who creates the trust prior to their death. This allows the trustee to understand any nuances of the person’s wishes when it comes to how the trust will be managed after the creator of the trust dies. Talking to the creator of the trust before they pass away can help the trustee to avoid some of the issues listed below.
Problems Trustees Face When Administering a Trust
Below is a list of some of the most common issues trustees face when administering a trust.
Allegations of Mismanagement of Trust Funds
One of the most common issues trustees have to deal with include a beneficiary alleging that the trustee is not investing or managing the funds within the trust in the best interests of the beneficiaries. While common, this claim is typically made with no factual evidence backing it up. Instead, a beneficiary simply makes this statement because they do not agree with how the trustee is performing their duties.
Disputes Regarding Authority
Another issue with trust occurs when the primary trustee dies and the secondary trustee takes over the account. If this occurs, a beneficiary may challenge the authority of the new trustee. Reviewing the trust documents can remedy this issue as the secondary trustee will be in the trust documents. However, if there are errors in the trust documents or if the language in the document is vague, the beneficiary may have a valid claim.
Demands for Distributions from the Trust
In most cases, the trust documents should state the conditions under which the distributions to the beneficiaries will be made. However, in many cases, a trustee has certain levels of discretion regarding asset distributions. If the trustee has discretion over distributing the assets, the beneficiary may not believe that the distributions are in the best interest of the trust or the beneficiaries.
Failure to Transfer Assets to the Trust
A trustee may think that they have the ability to administer certain assets. However, the creator of the trust must take legal steps to transfer assets into a trust. Thus, the trustee has no authority over assets that we never legally transferred into the account. To prevent these issues, a trustee must correctly identify a secure the assets within the trust. Furthermore, the trustee can seek court assistance if assets were not correctly placed into the trust.
Outdated Terms or Provisions
The most difficult issues that trustees encounter is when a trust contains terms or provisions that are outdated or void. To remedy these issues, the trustee may need to seek direction from a court before proceeding with the trust administration.
Deceased or Incapacitated Beneficiaries
Additionally, a trustee can have issues with the trust if a beneficiary to the trust dies or experiences incapacity. If the creator of the trust does not amend or address the beneficiary’s death, the trustee must seek direction from the court before proceeding with the trust administration.
Contests of the Trust
The beneficiaries or other individuals may contest that the creator of the trust had the capacity to create this trust. If this occurs, the trustee or beneficiaries may need to fight this claim in court. To fight this claim, the trustee or beneficiary must present evidence to the court. This evidence must show that the creator of the trust did have the capacity required to create a trust.
Trust and estate laws are complex. This is so no matter the type of trust you decide to establish. As such, it is extremely important to have legal representation that can help you correctly set up your trust. The Antonoplos & Associates trust and estate lawyers have over 20 years of experience helping clients in DC, Maryland, and Virginia set up living trusts, testamentary trusts, irrevocable life insurance trusts, charitable remainder trusts, qualified domestic trusts, spendthrift trusts, special needs trusts, asset protection trusts, and Totten trusts. With this knowledge and experience, we can help with any legal issues that occur from setting up your trust.
Furthermore, Peter Antonoplos, founder and managing partner of Antonoplos & Associates has an LLM in Taxation from Georgetown University Law Center. With this knowledge, Peter can help you decide what is the best type of trust for you and your family. Additionally, he can maximize the cost savings you receive from setting up a trust in DC, Maryland, and Virginia.
Contact our DC Law Office for More Information
Finally, for more information regarding common issues with trust administration, contact us at 202-803-5676. You can also directly schedule a consultation with one of our skilled attorneys. Additionally, for general information regarding trust and estate law, check out our blog.