How To Avoid Common Mistakes In Trust Administration
Dan McKenzie • October 7, 2023
If you are administering a trust after the grantor passes away, you may feel overwhelmed by the responsibilities and tasks that you have to perform. Trust administration can be complex and time-consuming, and it is easy to make mistakes that can have severe consequences for you and the beneficiaries. In this blog post, I will share some tips on avoiding common errors in trust administration and help you fulfill your role as a trustee with confidence and competence.
Carefully Read the Trust Agreement and State Law
The first thing you need to do as a trustee is to carefully review the trust agreement and the Colorado Uniform Trust Code. The trust agreement is the document that spells out the grantor's wishes, the terms of the trust, and your powers and duties as a trustee. The Colorado Uniform Trust Code is the state law that governs trusts and trustees in Colorado. You need to familiarize yourself with both sources of authority and follow them faithfully. If you have any questions or doubts about the trust agreement or the law, consult an experienced probate and trust attorney.
Understand Your Fiduciary Duties
The second thing you need to do as a trustee is to ensure you understand the fiduciary duties you owe to the beneficiaries. A fiduciary duty is a legal obligation to act in the best interests of another person or entity. As a trustee, you have several fiduciary responsibilities, such as:
- Duty of loyalty: You must act solely in the interests of the beneficiaries and avoid any conflicts of interest or self-dealing.
- Duty of prudence: You must manage the trust assets with care, skill, and diligence and invest them reasonably and diversified.
- Duty of impartiality: You must treat all beneficiaries fairly and equally, not favor one over another.
- Duty of accounting: You must keep accurate records of all transactions and activities related to the trust and provide regular accountings to the beneficiaries.
- Duty of administration: You must administer the trust according to its terms and purposes and in compliance with the law.
If you breach any of these fiduciary duties, you may be held personally liable for any damages or losses that result from your actions or inactions.
Common Mistakes and Oversights
The third thing you need to do as a trustee is to avoid some common mistakes that trustees make. Here are some examples of such errors:
- Failing to secure personal property properly: If the trust includes personal property, such as jewelry, art, or collectibles, you must protect them from theft, damage, or loss. You should inventory all personal property, store them safely, insure them if necessary, and appraise them.
- Assuming that you don't need to provide regular accountings to the beneficiaries: Even if the trust agreement does not explicitly require you to give accountings, you still have a fiduciary duty to do so under the law. Accountings are essential for keeping the beneficiaries informed of the status and performance of the trust assets and documenting your actions as a trustee. You should provide accountings at least annually or more frequently if requested by a beneficiary or ordered by a court.
- Failing to administer the trust with an appropriate level of diligence: Trust administration is not a one-time event but an ongoing process that requires constant attention and monitoring. You need to keep track of all income and expenses related to the trust, pay taxes and fees on time, distribute income and principal to the beneficiaries according to the trust agreement, review and update the investment strategy regularly, communicate with the beneficiaries and co-trustees effectively, and respond to any issues or challenges that may arise.
These are just some of the common mistakes that trustees make. Many other potential pitfalls can jeopardize your success as a trustee. That is why it is advisable to seek professional guidance from a qualified probate and trust attorney who can help you navigate the complexities of trust administration and avoid costly errors.
As an attorney in Colorado specializing in probate and trust administration, I have helped many clients like you fulfill their duties as trustees and achieve their goals as grantors. If you need assistance with any aspect of trust administration, please get in touch with me today for a free consultation. I look forward to hearing from you.
What next?
If you are administering a trust and think you might benefit from professional assistance, you can:
- Call 720-821-7604 to schedule an "Attorney Evaluation Session," to determine whether our firm would be a good fit for your needs. Or fill out our contact form to have us call you.
- Visit our estate administration page to learn more about how we might be able help you.
- Learn more by reading our blog or watching our videos.
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Dealing with the death of a loved one is never easy, and navigating the legal process that follows can add stress during an already difficult time. In Colorado, probate is the legal process by which a deceased person’s estate is administered, their debts are paid, and their assets are distributed to beneficiaries. Whether you’re an executor, beneficiary, or family member, understanding how probate works in Colorado can help you anticipate the steps involved and your potential responsibilities. This blog post will provide an overview of the probate process in Colorado, outline when probate is necessary, and offer guidance on how to navigate the system effectively.  What is Probate? Probate is the legal process that occurs after someone dies to ensure their assets are distributed according to their will or, if there is no will, according to state law. The probate process includes validating the will, inventorying the deceased’s assets, paying off debts and taxes, and distributing the remaining assets to the rightful heirs. While probate is often associated with lengthy court proceedings, not all estates require formal probate. Colorado offers several options depending on the size and complexity of the estate, which can help simplify the process in many cases. When is Probate Necessary in Colorado? Probate is not always required in Colorado. Whether an estate must go through probate depends on the types and value of the deceased’s assets. Generally, probate is necessary if: The deceased owned real estate solely in their name. The deceased’s assets, such as bank accounts or investments, were not held in joint tenancy or designated to transfer on death. The deceased had personal property valued at over $74,000 (as of 2023). If an estate falls below this threshold and does not include real estate, the beneficiaries can often use a Small Estate Affidavit to claim the assets without going through probate. Types of Probate in Colorado Colorado has three main types of probate procedures: small estate procedures, informal probate, and formal probate. The type of probate required depends on the estate’s value and whether there are disputes among heirs or creditors. Small Estate Procedure (Collection by Affidavit) The small estate procedure can be used if the value of the deceased’s assets is less than $74,000 and does not include real estate. This process involves filling out a Small Estate Affidavit, which allows the heirs to collect and distribute the assets without opening a probate case in court. It is the simplest and fastest way to handle a small estate. Informal Probate Informal probate is used when there is a valid will and no disputes among heirs or creditors. The process is overseen by a court-appointed Personal Representative (executor), but there is minimal court supervision. Most of the process, such as distributing assets and paying debts, is handled by the Personal Representative, with only basic filings required with the court. Informal probate is less time-consuming and costly than formal probate. Formal Probate Formal probate is required when there are disputes regarding the will’s validity, disagreements among heirs, or if the estate is complex and needs court intervention. The process is supervised by the court, and all major decisions, such as approving the distribution of assets, must be approved by a judge. Formal probate can take much longer and involve more legal fees than informal probate. Steps in the Colorado Probate Process While the specific steps in probate can vary depending on the type of probate and the complexity of the estate, the general process in Colorado typically includes the following: Filing the Probate Petition The process begins with filing a Petition for Probate with the appropriate Colorado probate court. The petition is usually filed by the executor named in the will or an interested party if no will exists. Appointment of the Personal Representative The court will appoint a Personal Representative (executor) to manage the estate. If there is a valid will, the person named as executor is typically appointed. If no will exists, the court will appoint someone, usually a family member, to serve as the Personal Representative. Notice to Heirs and Creditors The Personal Representative must notify all potential heirs and creditors of the probate proceeding. This step is essential for providing an opportunity for interested parties to come forward and make claims against the estate. Inventory and Appraisal of Assets The Personal Representative must create an inventory of all the deceased’s assets and have them appraised if necessary. This inventory will include real estate, personal property, financial accounts, investments, and any other assets owned by the deceased. Paying Debts and Taxes Before distributing assets, the Personal Representative must pay off the deceased’s debts and any taxes owed. If the estate does not have enough assets to cover all debts, Colorado law dictates the order in which creditors are paid. Distribution of Assets Once all debts and taxes have been paid, the Personal Representative can distribute the remaining assets to the beneficiaries according to the will or, if no will exists, according to Colorado’s intestacy laws. Closing the Estate After all assets have been distributed and all required filings have been made with the court, the Personal Representative can file a Petition for Final Settlement to close the estate. Once approved, the Personal Representative’s responsibilities are complete. Challenges and Disputes in Colorado Probate Unfortunately, probate can sometimes become contentious, especially in cases involving high-value estates or when family members disagree on how assets should be distributed. Some common challenges in Colorado probate include: Will Contests Heirs or beneficiaries may challenge the validity of a will, claiming it was signed under duress, there was undue influence, or the deceased lacked the capacity to create the will. Will contests can significantly delay the probate process and require formal probate to resolve. Executor Misconduct If an executor is not fulfilling their duties or is mishandling estate assets, beneficiaries can file a complaint with the court and request the executor’s removal. Disputes Among Beneficiaries Disputes can arise over specific bequests, how assets are divided, or even the valuation of estate property. Mediation or formal court intervention may be necessary to resolve these disputes. How a Colorado Probate Attorney Can Help Navigating the probate process can be overwhelming, particularly when dealing with the emotional aftermath of losing a loved one. An experienced probate attorney can help in several ways: Guiding You Through the Process An attorney can explain the probate process, help you understand your rights and responsibilities, and ensure all legal requirements are met. Managing Court Filings and Deadlines Probate involves numerous legal documents and deadlines. An attorney can handle these tasks, ensuring that everything is filed correctly and on time. Resolving Disputes If disputes arise, an attorney can provide representation in negotiations, mediation, or court hearings to protect your interests and work toward a fair resolution. Minimizing Costs and Delays With the guidance of a skilled attorney, you can often minimize the time and expense associated with probate, helping ensure the process goes as smoothly as possible. How The McKenzie Law Firm, LLC Can Help At The McKenzie Law Firm, LLC, we understand the complexities of the probate process and are committed to helping families navigate it with compassion and expertise. Whether you’re an executor needing assistance with your duties or a family member looking to understand your rights, our experienced probate attorneys can provide the support you need. If you have questions about probate in Colorado or need legal assistance, contact us today to schedule a consultation. We are here to guide you through the process and ensure your loved one’s wishes are honored.
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