A trustee has the important duty of managing property for another person's benefit. Because this is an important position of trust and an obvious target in family disputes over trusts and estates, a trustee may face the risk of accusations of mismanagement or theft.
A trustee who accepts appointment agrees to manage the assets in the beneficiaries' best interests and protect the estate. Trustees must also manage the trust to assure that its intended purpose is completed without unnecessary and inappropriate risks or cost.
They are governed by the prudent investor rule requiring a trustee to diversify trusts assets and property within a reasonable time. This requires a trustee to consider general economic conditions, the impact of inflation or deflation, tax consequences, appreciation of capital or income return and having readily-available cash.
A trustee may become personally liable in a lawsuit for violating their duties of trust. They can face legal and financial consequences by not understanding their duties, making negligent errors such as failing to diversify assets or making poor decisions on investments.
Incompetent trust management can also jeopardize family relationships. This can be compounded where there is dishonest administration. Even competent trust management can cause family jealously and disputes.
To help avoid these disputes, trustees should be appointed because of their honesty and competency with managing estate property. If there are any doubts, trustees may be allowed to decline appointment.
An unbiased and neutral party, such as a private fiduciary service, may be appointed. A named trustee who is authorized to appoint their successor, should consider a neutral trustee who is not a family member. A neutral trustee may preserve family relationships and preserve feeling by making hard and objective decisions.
An attorney may help draft a trust that complies with Michigan law, fulfills the person's intentions and protects inheritance. They can also help trustees with the capable administration of trust assets.
Source: The Record Courier, "Administering a trust can be risky," By Michael G. Millward, Esquire, May 6, 2018