A trustee can end up having to pay taxes out of their own personal funds if they fail to take action on behalf of the estate in a timely way. Of course, they can also face criminal liability for such crimes as taking money out of a trust to pay for their own kids' college tuition. Yup, that's stealing.
Pros of Serving as an Executor or Trustee
This can provide a sense of personal satisfaction and honor, knowing that you are contributing to their legacy. By efficiently and fairly administering the estate, you can help to maintain harmony among surviving family members and reduce the potential for disputes.
Naming the same person as trustee and beneficiary can be problematic. Not only can it lead to a trustee and beneficiary conflict of interest, but it can make it difficult for the trustee to uphold their duty to treat all beneficiaries equally.
Ultimately, trustees can only withdraw money from a trust account for specific expenses within certain limitations. Their duties require them to comply with the grantor's wishes. If they breach their fiduciary duties, they will be removed as the trustee and face a surcharge for compensatory damages.
If the trustee is not paying beneficiaries accurately or on time, legal action can be taken against them.
Selecting the wrong trustee is easily the biggest blunder parents can make when setting up a trust fund. As estate planning attorneys, we've seen first-hand how this critical error undermines so many parents' good intentions.
This is a fundamental concept of trust law: the separation of legal and equitable title. In other words, while the trustee has the legal authority to manage and control the assets, they do so not for their own benefit, but for the beneficiaries.
A A Trustee is disqualified 'as Trustee' upon his death, loss of his legal competence, removal from trusteeship, liquidation, rescinding his licence or declaring his bankruptcy. The Trust shall then be transferred to the other Trustees in case of multiple Trustees, unless the Trust Instrument provides otherwise.
Experience and Knowledge. Another key consideration is whether the individual or entity is qualified to act as trustee. If the trust has substantial assets, an individual with experience managing significant assets or with a background in finance or investments may be better suited to the role of trustee.
Under California law, embezzling trust funds or property valued at $950 or less is a misdemeanor offense and is punishable by up to 6 months in county jail. If a trustee embezzles more than $950 from the trust, they can be charged with felony embezzlement, which carries a sentence of up to 3 years in jail.
Anyone 16 and over (18 for an Unincorporated Association or Charitable Trust) who is not 'disqualified' can be a Trustee. The reasons for disqualification were set down by the Charities Act 2011, and were designed to prevent people convicted of financial crimes, or who made serious financial errors, becoming trustees.
Trustees are personally liable for all decisions they take in that capacity, and their liability is not automatically limited to the value of the trust fund. Typically, the trust deed will limit trustees' liability in some way and these clauses should be checked, as well as any existing trustee insurance.
Declining to Administer a Trust
The position must be formally accepted if you want to do the job. If a reasonable amount of time passes, and the named trustee does not accept, the court will consider them to have rejected the job.
The trustee is liable, at the option of the beneficiary, to purchase other land of equal value to be settled upon the like trust, or to be charged with the proceeds of the sale with interest.
Serving as the trustee of a trust instills a person with significant power. They have access to all the trust assets, but with a catch: They can only use those assets to carry out the instructions of the trust.
Reasons for removing a trustee
They may reach the end of their term of office. They may choose to step down. Their circumstances may change in a way which stops them from continuing their role.
1) Helping others – Lending your skills and experience gained in the private sector to a charitable cause to help people in need, instead of corporate stakeholders. 2) Focus your energy – Many people join charities that have supported family or friends that needed help in the past.
Trusts offer amazing benefits, but they also come with potential downsides like loss of control, limited access to assets, costs, and recordkeeping difficulties.
There are a variety of assets that you cannot or should not place in a living trust. These include: Retirement accounts. Accounts such as a 401(k), IRA, 403(b) and certain qualified annuities should not be transferred into your living trust.
Average trust fund amount
While some may hold millions of dollars, based on data from the Federal Reserve, the median size of a trust fund is around $285,000. That's certainly not “set for life” money, but it can play a large role in helping families of all means transfer and protect wealth.