(Almost) Ten Top Tips for Trustees to Avoid Litigation | Lathrope GPM

Trustees sometimes find themselves in the unenviable position of being confronted with conflicts, either with or between beneficiaries. In this article we offer some tips on how to avoid and manage conflict and how to approach the role and requirements of a fiduciary with a view to avoiding litigation involving fiduciary roles.

#1 – Communicate early and often

Although it may seem obvious, communication can go a long way in preventing or resolving conflicts. A trustee should set expectations for its role vis-à-vis the beneficiaries early in the appointment. Along the way, it’s also important to keep beneficiaries updated on the progress of the trust or estate and any issues or questions that may arise. Trustees should also be willing to have tough conversations with beneficiaries and listen to beneficiaries who need to feel heard, understood and respected. While written communication is always a good practice to document your actions, face-to-face calls or meetings can also be crucial in building a relationship.

#2 – Know the parties

A trustee should get to know the beneficiaries and other interested parties. This starts with knowing who the current and remaining beneficiaries are and keeping contact information up to date for everyone. A trustee should also understand what concerns parties may have and what drives them. The trustee should look after and look after the beneficiaries, their families and their interests.

#3 – Understand the document

The trustee should fully understand the terms of the trust or will. Sales standards, reporting requirements and other required duties of the Trustee are likely to be included in the relevant document. The language commonly used is likely to have been interpreted by courts, defined in legislation or in the document itself, and the trustee should understand those interpretations. For example:

  • “Health, Education, Maintenance and Support” distributions
  • “Child, Heir, Descendant” distributed
  • “should vs. may” standards

The trustee should also understand the procedural requirements for fiduciary voting (e.g., majority or unanimity), removal and appointment of trustees, and reporting to beneficiaries.

#4 – Know the Duties of a Trustee

In addition to the requirements set out in the Document, there are statutory and general legal obligations that Trustees are bound by and should be familiar with. These include:

  • Duty to administer the trust or estate in good faith and in accordance with its terms
  • duty of loyalty to avoid conflicts of interest and non-interference;
  • commitment to impartiality;
  • duty of care and diversification;
  • Obligation to bear only reasonable and reasonable costs;
  • duty to use reasonable care, skill and caution in delegation;
  • duty to control and protect trust assets;
  • Obligation to keep adequate records and to inform and report to interested parties; and
  • Duty of confidentiality in good faith.

#5 – Pay attention to accounting and records

Trustees have a duty to give interested parties adequate information about the administration of the trust or estate and the material facts necessary for them to protect their interests. Trustees must also respond within a reasonable time to requests for administrative information from beneficiaries. The required frequency of regular accounting and reporting depends on the applicable instrument and law and the trustee should comply with those requirements. The trustee must also keep sufficient records to explain and track all transactions, detailing time spent, receipts, disbursements, etc.

#6 – Take preventative and remedial action

A trustee can take a few other preventive measures to prevent conflict and litigation while protecting themselves. For example, a fiduciary may obtain court approval of its records and activities. In advance, a trustee may obtain court approval or direction on matters in dispute, such as: B. amending the document, approving fees and confirming proposed actions. Seeking legal assistance is allowed and even encouraged to reduce conflict and risk.

#7 – Understand the tax implications

A trustee should be aware of how the trust or estate may be affected by tax concerns. At this time, potential changes in the taxation of capital gains could affect a portfolio of fiduciary investments or decisions about the realization of gains. A generational leap tax-exempt trust may be managed very differently and may have different investment objectives than a non-exempt trust. The decision whether to accumulate or distribute income may have tax implications for the trust towards its beneficiaries which need to be considered. Therefore, a trustee should have competent tax advice to advise on these considerations, recognizing that the duties are more than filing an income tax return.

#8 – Familiarize yourself with litigation costs

A trustee who breaches a duty may be held liable for damages caused by that breach. A personal surcharge for monetary damages may be imposed on the trustee for loss of profits, loss of use of property, unjust enrichment, civil theft or punitive damages. In addition, the trustee may be directed to surrender or return any property or profits. Aside from financial damage, a trustee’s reputation or relationships can also be adversely affected by litigation.

#9 – Understand the role of legal counsel

Legal counsel can help trustees navigate and mitigate conflicts. The Counsel can provide proactive advice on administrative issues throughout the process or be a new pair of eyes on difficult issues. Counsel can be a new voice and perspective when dealing with interested parties. Trustees should not hesitate to consult legal counsel. It is better to seek legal advice at the first sign of trouble, or even before, than to wait until a lawsuit has already been filed, when containing costs and managing the relationship and reputation can be more difficult.

Following the tips above can help a trustee better fulfill their duties and manage the relationship with the beneficiaries of the trust or estate and other interested parties. Where a trustee may be beset with potential problems, conflicts and liabilities, it is vitally important to avoid these problems – prior to litigation.

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