Your Best Defense - Protecting Yourself as Trustee with Great Recordkeeping
Whenever a person takes over as the trustee of a trust or the personal representative/executor of an estate, they expose themselves to liability for their actions. Your best defense in a lawsuit will be the financial records you keep. The first thing to be done is gather and secure the assets of the trust or estate. As soon as possible, you must create an inventory of the assets held by the trust or estate and their respective values as of the date of death or the date you took over. Thereafter, your records should show all assets you receive, hold, and disburse with details on each. Your records should classify all receipts and disbursements as income or principal. If you keep your accounts carefully, it will be a simple matter to find all of the information necessary to prepare tax returns, reports to the beneficiaries, or reports to the court, if that becomes necessary.
Your annual accounting records should include the following elements:
An inventory of all trust assets, any changes in the status of the assets, and the approximate fair market value of each asset;
Detailed information regarding all trust bank accounts, including bank statements;
The nature of all investments, together with proper backup information;
Any and all insurance of all types in force for the trust assets or for a beneficiary, and the dates and amounts of all premium payments;
All debts of the trust and pertinent information about each debt, including the nature of the debt and the identity of the creditor;
A list of all known claims presented to the trustee and pertinent information about each claim, such as the identity of the claimant, the nature of the claim, and what action the trustee took regarding that claim;
All receipts that have come into the trust and how those receipts were derived;
All disbursements made from the trust, to whom each of the disbursements was made, the purpose of the disbursement and whether the disbursement came out of principal or income; and
A statement specifying the trustee’s compensation and how that compensation was calculated.
It would be wise to have the beneficiaries sign written receipts for all distributions and, for beneficiaries entitled to an accounting, to have them sign approvals of your annual accountings as they are rendered. You will have the option of asking a court to review and approve your accountings if any of the beneficiaries do not approve them.
The best evidence in defending yourself from claims of mismanagement of the estate will be the records you keep. So spend the time to keep detailed financial records of your activities. Remember, these assets do not belong to you, they belong ultimately to the beneficiaries. So always act with their best interests in mind.
This post is for informational purposes only and not for the purpose of providing legal advice. You should contact an attorney to obtain advice with respect to any particular issue or problem. Nothing herein creates an attorney-client relationship between Hallock & Hallock and the reader.