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Top Ten Mistakes Made by Trustees and Personal Representatives

Posted on: March 11th, 2015
Trustees and Personal Representatives, i.e., estate fiduciaries, are bound by a bewildering array of responsibilities and duties, meant to protect estate assets for beneficiaries. has come out with its list of the top ten mistakes that Trustees and Personal Representatives of estates commonly make and must make sure they avoid. We've modified their list pretty significantly to add more detail and identify the most common mistakes that we see in our practice here in Maryland and DC.

Falling into one or more of these traps may result in costly Trust or Estate litigation and may be the basis for a breach of fiduciary duty lawsuit.

Mistake 1:  Improperly Interpreting or Not Properly Following the Terms of the Trust or the Will

The Trust and the Will are the governing documents for estate administration. Many Trustees and Personal Representatives, however, choose to view the documents as providing rough guidelines, not absolute instructions. Others may decide to administer the estate based on what they believe the deceased "would have wanted" or indicated orally just before death.  Others try to follow the word of the Trust or the Will but lack a clear understanding of some legal terms commonly found in these documents such as "per stirpes" or the actual meaning of "health, education, maintenance, and support."  Many also do not understand the duties and powers they are authorized or required to perform.

Mistake 2:  Making Incorrect Distributions

Clear bequests, such as, "pay $20,000 to my son, James Quincy Hopkins, III, who was born on June 18, 1972, if he survives me," is hard to misinterpret.  It is more challenging, however, to make proper distributions of the "residue" if the estate is to be paid to several beneficiaries in unequal shares or in a combination of cash and "in kind."  Personal Representatives and Trustees also often fail to account for estate liabilities, such as debts of the decedent, taxes, administration expenses, etc.; and may fail to identify all assets of the Trust or Estate.

Mistake 3:  Overlooking a Trust or Estate Beneficiary

Missing a beneficiary might occur because of carelessness, unfamiliarity with the decedent's family, or misunderstanding a "class" of beneficiaries.  For example, the fiduciary may need to look to state law or carefully read the Trust or Will to interpret properly the meaning of "issue."  This problem also often occurs because of the more complicated family trees today, having multiple marriages, blended families, and extended families. Trustees and Personal Representatives must be careful to identify properly the members of a class of beneficiaries.

Mistake 4:  Failure to Prudently Invest Trust or Estate Assets

Investing other peoples' money when you are the trusted fiduciary must be approached with care and deliberation.  Trustees and Personal Representatives must act prudently and in the best interests of the beneficiaries when investing.  They also carefully must understand and adhere to the investment powers specified in the Trust and the Will.

Mistake 5:  Understanding What Comprises the Fiduciary's Commission

A Trustee or Personal Representative may be entitled to receive a commission for performing this important role.  Often, Trustees and Personal Representatives who also are beneficiaries decline to receive a commission.  For Trustees, the issue of a proper commission often is indicated in the Trust document.  For a probate estate, however, Personal Representatives often run into the most trouble with beneficiaries by making mistakes with respect to their commissions.

In Maryland, a Personal Representative's commission must be below a statutorily specified maximum amount.  Moreover, the Personal Representative in Maryland cannot take a commission without prior approval from the Orphans' Court, unless the Personal Representative obtains written consent from all of the interested persons and open debtors for the commission and the commission requested is below the statutory maximum amount.

Where Personal Representatives get tripped up is knowing what is included in their commissions.  Most people serving in this role do not know that in Maryland, expenses spent on local travel on estate business typically is included as part of the commission and not a separate expense of the estate.  Also, fees paid to persons who assist Personal Representatives, for example, bookkeepers organizing the finances of the estate and assisting with preparing inventories and accounts, typically are expenses that should be borne by Personal Representatives as part of their commissions and are not considered separate expenses of the estate.

Paying these types of expenses along the way often leads to Personal Representatives paying themselves "commissions" without Court approval; and are considered mismanagement of estate assets. Such actions often lead to breach of fiduciary duty lawsuits.

Mistake 6:  Unnecessary Delay in Making Distributions to Beneficiaries

Too often, Trustees or Personal Representatives procrastinate and fail to meet deadlines.  This often occurs because the fiduciaries, when they take on the role, have no idea how much work will be involved. Some deadlines, such as for estate liabilities and taxes, have strict and unforgiving deadlines.  In addition, there often is a prudent standard that Trustees and Personal Representatives should follow, based on jurisdictional guidelines.  Missing deadlines and standards with respect to distributions to beneficiaries is another justification for a breach of fiduciary duty action.

Mistake 7:  Not Properly Safeguarding Trust and Estate Assets

The preliminary duty that Trustees and Personal Representatives must undertake is to locate, collect, and protect Trust and Estate assets.  Failing to identify estate assets or failing to make sure the assets properly are protected, e.g., through insurance coverage, changing locks on real property, taking care of an ongoing business, etc., may result in serious losses to an estate.

This responsibility includes the proper valuation, protection, and distribution of personal effects and household items.  Trustees and Personal Representatives must take care to ensure that family members do not enter a home and take off with valuable (or even not so valuable) property.  Valuable property such as artwork or antiques take special care.  Trustees and Personal Representatives may have a duty to ensure that, if such property is to be liquidated, they make efforts to get the best price possible and not just let a Rembrandt go for a bargain price at a yard sale.

Mistake 8:  Not Communicating Effectively with Beneficiaries

Trustees and Personal Representatives may be handling their duties flawlessly and with the utmost integrity and accuracy, but if they fail to keep the beneficiaries apprised of their progress, they likely will run into problems with disgruntled beneficiaries.  Trust and Estate Administration often is complex and for legitimate reasons may take a long time.  No news, however, often is considered bad news by beneficiaries who are awaiting an inheritance, resulting in anxious and annoyed beneficiaries.

Mistake 9:  Improperly Delegating Duties

While Trustees and Personal Representatives are personally legally responsible for their fiduciary role, it is common for them to hire assistants or professional to help them fulfill their duties.  Trustees and Personal Representatives must maintain sufficient oversight of their agents and the work they perform, because the fiduciaries will be liable for any mistakes the agents make.

Mistake 10:  Misunderstanding How Joint Accounts and Pay on Death Accounts Work

Trustees and Personal Representatives diligently may read the Trust and Will documents, accurately account for and safeguard assets, act quickly and prudently, properly identify the appropriate and correct beneficiaries, but still may overlook some basic principles of how property should be passed to beneficiaries.  Assets that are owned jointly with others may be owned as "joint tenants with right of survivorship" (also known as "tenants by the entirety" for married couples in Maryland and DC) or as "tenants in common."  With the former, the property passes directly to the joint tenant, despite any provision in a Trust or a Will.  With the latter ("tenants in common"), the property passes according to the terms of the Trust or the Will.  Even assets that are in the sole name of the decedent may have "Pay on Death" designations or beneficiary designations.  These assets also pass directly to the beneficiary names, despite what may be specified in the Trust and the Will.  Trustees and Personal Representatives, therefore, must be careful to respect the nature of the ownership of assets before handing them over to the beneficiary identified in the Trust or the Will.

Many of the mistakes listed above occur because of inexperience of Trustees and Personal Representatives and the increasing complexity of Trusts and Estates.  The inexperience factor is easy to understand.  After all, how many people ever serve in the role of Trustee or Personal Representative more than one time?  After that first time, they often vow never to do it again!  Nevertheless, Trustees and Personal Representatives must avoid these common mistakes; or they may find themselves in the middle of costly Trust and Estate litigation.
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