A person who writes a will or creates a trust may name you as an executor or trustee. You could also become an estate administrator by court appointment. In any of these cases, you become a fiduciary with the responsibility of managing assets for someone else’s benefit.
Being a fiduciary is a significant responsibility. If you make mistakes, beneficiaries may challenge the validity of the will or trust. You could also be personally liable for monetary penalties or damages that result from your errors. The American Bar Association describes some common mistakes in estate or trust administration to avoid.
1. Not maintaining a professional distance
You should maintain formalities of estate management even if you were a family member of the decedent or are a friend of the beneficiaries. It can be difficult to keep this distance as it relates to estate and trust administration, but doing so can help avoid future problems.
2. Allowing insurance to lapse
Some of the assets you manage, such as houses, have insurance coverage. If you allow the insurance to lapse, it may not matter unless there is damage to the property, but if that occurs, the beneficiaries suffer a loss.
3. Not filing tax returns on time
As the administrator, it is your responsibility to file taxes on behalf of the estate or trust. If you fail to file the returns or pay taxes on time, you could be responsible for the resulting penalties.
4. Not communicating with beneficiaries
Keeping beneficiaries up to date about the status of the estate or trust helps them to maintain confidence in you.
If you make mistakes, you may wish to keep them to yourself until you can fix them in the hopes that the beneficiaries will never know. However, it is likely that they will find out, and when they do, they may feel that you have deceived them even if that was not your intention. Therefore, it is better to communicate consistently with beneficiaries, updating them on both the good and the bad.
