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Trusts are a mainstay in estate planning. They safeguard money and assets placed within them, they avoid probate, allow settlors control far past the point of death, and prevent fighting between family members and beneficiaries. All this, however, hinges upon proper execution of the trust. The person largely in charge of this is the trustee. A trustee, in theory, is supposed to be an approximate proxy for the settlor, managing the trust and distributing the trust assets just like the settlor would do in their place. This is easier said than done. Many times, trustees are ignorant, neglectful, or outright indifferent regarding the duties and obligations of being a trustee. That is why Ohio law memorializes these duties in law and why picking a trustworthy, responsible, and diligent trustee is so important. Contacting an experienced estate planning attorney can make the process of trustee selection much easier and answer any questions a potential trustee might have.
A previous post expanded on one of the principle duties of a trustee, namely the duty to inform and all the accompanying obligations inherent with it. This, however, is only the tip of the iceberg for trustee duties. Again, because the opportunities for misbehavior and self-dealing are so available, a lot of rules are in place to control trustees. Ensuring proper trustee behavior is only half of the equation though. Trustee duties also serve the additional purposes of making sure interested parties have the necessary information to protect their interests, ensuring the settlor’s original intent is followed, and trust assets preserved and utilized in a manner that, at least arguably, fulfills the trust’s purpose. The only way to effectively and comprehensively accomplish these aims is to compel trustees to do certain things and act a certain way via the law.
Trustee duty to keep adequate records
Part of the “core” of a trustee’s duties is ensuring that adequate records are kept of trust dealings. Often best way to communicate and preserve critical information is with good old-fashioned record keeping. Trustees can’t communicate information they don’t know and keeping adequate records ensures trustees are in-the-know regarding the trust they are managing. The old adage, show me, don’t tell me is apt, especially when it comes to trust beneficiary money and distributions. An uninformed beneficiary is a litigious beneficiary, which is something every trustee wants to avoid.
Per O.R.C. § 5808.10:
A trustee shall keep adequate records of the administration of the trust.
A trustee shall keep trust property separate from the trustee’s own property.
A trustee shall cause the trust property to be designated so that the interest of the trust, to the extent feasible, appears in records maintained by a party other than a trustee or beneficiary.
If the trustee maintains records clearly indicating the respective interests, a trustee may invest as a whole the property of two or more separate trusts.
The duty to keep adequate records is implicit in the trustee’s duties to act with prudence and to report to trust beneficiaries. As previously stated, telling something is a lot different than showing. Aside from the fact trustees must provide adequate records when they give their mandatory trust reports, proper record keeping safeguards trustees against beneficiary claims, such as embezzlement and concealment. In the circumstances of impending litigation with an angry beneficiary, it is much more difficult for an innocent trustee to defend themselves if they have to retroactively track and record trust dealings. As most experienced estate planning attorney say, the best way to win a lawsuit is not to get sued in the first place.
The rule to keep trust property separate from personal property should be self-evidence, but it is surprising so many trustees fail at this. Be it simple ignorance or willful disregard, do not co-mingle assets. Whatever accounting ease or financial institution savings there are to be had, it simply isn’t worth the risk. Nothing should be placed in a trust that the settlor doesn’t personally put there or directs to be put there. Sign trust checks with the title of trustee and the name of the trust and use the accounts the trust documents or the settlor creates. An estate planning attorney should inform a trustee of all of this when the trust is created.
The duty to earmark trust assets and the duty of a trustee not to mingle the assets of the trust with the trustee’s own property are closely related. To earmark trust property properly, the interest of the trust’s interest in the property must appear in the records of a third party, such as a bank, brokerage firm, financial institution, or transfer agent. Because of the serious risk of mistake or misappropriation if disclosure to beneficiaries occurs, notation in the trustee’s own internal records is insufficient to earmark properly. Usually a trustee is in sole possession of relevant documentation and information regarding the trust, thus beneficiaries are prone to act imprudently with any scrap of trust information they have and contact third parties regarding trust assets and causing trouble or confusion. To combat this, trustee would be wise to seek the counsel of an experienced Cleveland estate planning attorney to help plan and implement proper designation procedures for trust property. A little foresight and planning can avoid a lot of confusion and headaches later.
The duties and obligations surrounding proper record keeping are not practically difficult but they can be time-consuming, that is why trustees get paid for their labor. Most of us are not accountants or financial planners and, as such, have little experience keeping detailed records of the type a probate court, or beneficiary, will inevitably request. Thus, always consult with an experienced Cleveland estate planning attorney to remain informed of all of your trustee duties and obligations and make sure you have the knowledge and professional support to keep adequate trust records.
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About the author: Mike E. Benjamin, Esq.
Mike is a contracted attorney at Baron Law LLC who specializes in civil litigation, estate planning, and probate law. He is a member of the Westshore Bar Association, the Ohio State Bar Association, the Cleveland Metropolitan Bar Association, and the Federal Bar Association for the Northern District of Ohio. He can be reached at email@example.com.
The information contained herein is general in nature, is provided for informational and educational purposes only, and should not be construed as legal or tax advice. The author nor Baron Law LLC cannot and does not guarantee that such information is accurate, complete, or timely. Laws of a particular state or laws that may be applicable in a given situation may impact the applicability, accuracy, or completeness of the preceding information. Further, federal and state laws and regulations are complex and subject to change. Changes in such laws often have material impact on estate planning and tax forecasts. As such, the author and Baron Law LLC make no warranties regarding the herein information or any results arising from its use. Furthermore, the author and Baron Law LLC disclaim any liability arising out of your use of, or any financial position taken in reliance on, such information. As always consult an attorney regarding your specific legal or tax situation.