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How trustees can help avoid facing lawsuits

When people are asked by a friend or loved one to administer a trust after they die, they generally don't consider the possibility that they could end up in court with family members (even their own), business associates of the deceased person, charities or other beneficiaries who don't believe the trust is being properly handled.

Trustees often don't have professional experience in handling the responsibilities they're tasked with. Too often, they don't seek the legal guidance they need to help them avoid becoming embroiled in trust litigation. Meanwhile, they're being watched by those impacted by the trust, with every move being scrutinized and criticized.

Sometimes, a trustee's duty is simply to protect the assets in the trust and disburse them as the deceased person directed. In other cases, they're supposed to ensure that the trust continues to earn money (through investments, for example).

People can take legal action against a trustee for any number of reasons. The most common are:

  • Mishandling of assets
  • Improper accounting
  • Conflict of interest
  • Intentionally harming trust beneficiaries financially

These lawsuits often involve claims that the trustee is using their position to benefit themselves (self-dealing) at the expense of the beneficiaries or that they simply are incompetently handling the assets in the trust.

You don't have to be the trustee of a multimillion-dollar trust to face a lawsuit. Small family trusts can be the subject of nasty, expensive claims. Trustees can find themselves spending large amounts of money to defend themselves. Trustees can even get insurance policies to help them if they face a lawsuit -- assuming that they haven't been engaged in intentional wrongdoing.

If you haven't yet agreed to be a trustee, give some careful thought to whether you're really able and willing to do the work and face the conflicts (even if they don't end up in court) that will come with it. If you're about to begin your work because the person who drew up the trust passed away, you can reduce your risk of facing legal claims by obtaining guidance from an experienced estate planning attorney and perhaps financial, tax and other professionals.

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