Think Twice Before Becoming a Trustee

trusteeI am often contacted by individuals who are the trustees of a family trust needing help because they were not aware of the strict standards and steep penalties that are imposed by law on trustees.  Additionally, some call me not even knowing they were signed up as trustee in the first place.

Trustees have many obligations and duties to protect, manage and grow the property of a trust.  These duties are spelled out in the terms of the trust and (often overlooked) under statutory law.  If a trustee violates their duties and obligations, there may be severe penalties including removal of the trustee and damages owed personally by the trustee for more than the amount the trust was actually harmed.  This articles will examine only some of the duties of a trustee.

Trustees have a duty:

  • to administer the trust prudently with reasonable skill, in good faith, in accordance with the terms of the trust, and in the interest of the beneficiaries;
  • of loyalty to the trust to administer it consistent with its terms and in the interest of the beneficiaries;
  • to be impartial when managing and distributing trust property. This (and the previous two bullet points) are some of the elements of what is known as the fiduciary duty owed by trustees;
  • to take control of trust property;
  • to enforce claims of and defend claims against the trust;
  • to keep that property separate from the trustee’s own personal property;
  • to keep records of the property and the administration of the trust;
  • to report to qualified beneficiaries certain events regarding the administration of the trust. This duty to report is ongoing and likely requires at least annual reporting.  Trustees should refer to the Kansas Uniform Trust Code or consult an attorney to better understand this duty.  Some items that trustees have a duty to report to the beneficiaries include (but are not limited to): any change in trustees, trust property and any growth or distributions of that property, investments, or liabilities; any change in status of the trust or the settlor; and any change in trustee compensation;
  • to use any special skills they might possess in their management of trust property. This includes, for instance, any skills or experience a trustee may have with investing money whether personal or professionally.  Those special skills should also be used when managing and investing the property of the trust and failure to do so may be a violation of the duties a trustee owes to the trust;
  • After the death of the settlor (trust maker) to determine whether a tax identification number is needed for the estate and/or the trust;
  • address any ongoing business of the late settlor;
  • make sure all real and personal property are insured and being taxed correctly;
  • Determine if the late settlor made any gifts that require the filing of a gift tax return with the IRS.

It is improper for a trustee to personally enter into any transaction with the property of the trust, with very limited exceptions including the requirement of preapproval by a court or authorization in the trust.  It is imperative that a trustee consult an attorney before entering into such a transaction to avoid violating the trust and the law.  Otherwise, the transaction may be cancelled after the fact, and/or penalties or damages may be imposed against the trustee.  Leasing property or buying property from the trust could violate the trustee’s duty unless agreed to by all the beneficiaries.

If you have any questions about your duties as a trustee, or regarding the trustee of any trust you have created or to which you might be a beneficiary, I am always glad to discuss those questions or any concerns you might have.


Change in Law Will Make Special Needs Trusts More Available

Special Needs Trusts are an extremely important tool for individuals with special needs. Many of the assistance programs created for those with special needs are only available to those with no more than $2,000.00 in countable assets. Creating a special needs trusts allows an individual with special needs to be able to use the assets in the trust for certain purposes, without disqualifying them from needs-based assistance.

Until recently, the individual with special needs could not themselves create the trust. Though so many of these individuals have the capacity to create them, the law requires these trusts to be set up by third parties such as a family member, guardian, or the court.

On December 7, 2016, the United States Senate approved a House Bill that allows competent individuals with disabilities to create their own special needs trusts. It is expected that President Obama will sign this bill.

This will have far-reaching, positive effects for the special needs community and the attorneys who serve them. It will be much easier and practical for individuals with special needs to manage their assets and plan for their future. The attorneys of Schlagel Long are able to help anyone who is interested in creating a Special Needs Trust—call us to set up a consultation.

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