When you place assets into a trust—commonly called funding—the trust legally owns them. Trusts can be used to avoid probate for this reason. Hypothetically, if everything you own is in one, you don’t technically have any assets. Estate planning attorneys can create specific types of trusts that allow you to access things such as your home while you are alive. However, after you pass away, your designated trustee takes legal ownership over the assets contained in the trust.
The trustee also possesses a fiduciary duty to the beneficiaries of the trust. The trustee will accept the position by signing a document your attorney will provide. Trustees are obligated to act per the intentions and wishes you and your attorney outlined when you created it. If the trustee breaches their duty, it can lead to ligation and potentially criminal charges. The following are common things a trustee can do to ensure they don’t breach their duty to the trust’s beneficiaries.
Don’t Do This Alone
You should read the trust in its entirety and annotate anything you do not understand or need clarification on. Because you are accountable for following what it says, it is paramount that you know it. However, legal documents can be confusing due to the lawyers’ contractual language and terminology. The verbiage being used is done deliberately, but that may also mean added challenges for you.
You should reach out to an attorney and a financial advisor to assist you. Often, there are investments and accounts that a financial advisor can manage for you. If there are several pieces of property in the trust, who will take care of them? You can even ask if the funds in the trust can be used to pay for the additional costs associated with professional help (which they likely will). Trustees can also be financially compensated for their work.
Proper Documentation
An attorney and a financial advisor can assist you with ensuring that you have appropriately documented everything. Not only do you have obligations to the beneficiaries but to the IRS. If you decide to hire a property manager to maintain the homes in the trust, you must document how they are paid and where the funds came from. Financial advisors can work with you so that you don’t commingle funds.
For example, imagine a trustee who uses their personal account to pay a property manager and then takes money out of the trust as compensation. Although you are not expected to pay these expenses from your own pocket, your team of lawyers and accountants can help verify there is a clear path of money leaving and entering the trust. This is to prevent accusations of embezzlement or theft.
Luis E. Barreto & Associates
Our firm has a significant amount of experience in defending and conducting litigation based on trustee misconduct, breach of duty, and other trust law disputes. Contact Luis E. Barreto & Associates and set up a consultation if you have any further questions regarding probate and estate litigation.
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