What Gets Trustees in Trouble

(A Practical Guide for Trustees — and the Advisors Who Support Them)

Most trustees do not get into trouble because they are dishonest.

They get into trouble because they are overwhelmed, under-informed, or overly confident.

Serving as a trustee is a fiduciary role governed by the California Probate Code. It carries legal duties - not just family expectations.

For CPAs, financial advisors, and trustees themselves, understanding the common pitfalls can prevent expensive and unnecessary disputes.

Below are the mistakes I see most often.

1. Failing to Communicate

Silence breeds suspicion.

Even when everything is being handled properly, beneficiaries who feel excluded often assume something is wrong.

Trustees should:

• Provide regular updates

• Explain timelines

• Respond to reasonable inquiries

• Share copies of accountings when required.

  
  

Clear communication reduces the likelihood of litigation more than almost anything else.

2. Treating Trust Assets Like Personal Assets

This is the fastest way to create liability.

Common missteps include:

• Using trust funds for personal expenses

• Borrowing from the trust without authority

• Failing to keep accounts separate

• Commingling funds.

Trust assets must remain separate and documented. Even innocent “temporary” use can create serious legal exposure.

3. Ignoring the Duty of Impartiality

When there are multiple beneficiaries - especially siblings - the trustee must act impartially.

That does not mean equal outcomes in every situation. It means consistent application of the trust terms without favoritism.

Common mistakes include:

• Advancing funds to one beneficiary without documentation

• Allowing one beneficiary access to property without compensating others

• Informally “working things out” without written agreement.

Impartiality must be demonstrable, not assumed.

4. Poor Record-keeping

Trustees have a duty to account.

If you cannot show where money went, you are exposed.

Trustees should:

• Maintain detailed financial records

• Track receipts and disbursements

• Retain invoices and supporting documentation

• Keep a clear ledger of transactions.

Many disputes arise not from wrongdoing, but from the inability to produce records.

This is where CPAs play an essential preventative role.

5. Delaying Administration Unnecessarily

Administration takes time - but unexplained delay creates tension.

Common causes of delay:

• Avoiding hard conversations

• Waiting too long to sell property

• Failing to obtain tax advice

• Not understanding distribution requirements.

Beneficiaries are entitled to reasonable progress. A trustee who simply “lets things sit” increases the likelihood of formal demands.

6. Mishandling Real Property

Real estate often creates friction.

Trustees sometimes:

• Allow a beneficiary to live in property rent-free

• Delay maintenance

• Fail to insure property properly

• Neglect required disclosures when selling.

Real property must be managed prudently and consistently with fiduciary standards.

Advisors should ask trustees whether property decisions are documented and defensible.

7. Making Distributions Too Early

It can feel compassionate to distribute quickly.

But premature distributions can create problems if:

• Creditor claims are unresolved

• Taxes are unpaid

• Expenses are underestimated.

Once assets are distributed, recovering funds is difficult.

Careful sequencing protects both the trust and the trustee.

8. Failing to Seek Professional Guidance

Trustees are allowed - and often expected - to obtain professional advice.

That includes:

• Legal counsel

• CPA guidance

• Investment advice.

Refusing help in complex situations can itself be imprudent.

Trustees are not expected to know everything. They are expected to act reasonably and seek expertise when needed.

9. Letting Family Dynamics Override the Document

A trustee’s duty is to follow the trust terms - not to renegotiate them.

Statements like:

• “Dad wouldn’t have wanted this.”

• “It’s only fair if we adjust it.”

can place a trustee in a legally vulnerable position.

Unless all beneficiaries formally agree in writing and the law permits modification, the document controls.

Why This Matters for Advisors

CPAs and financial advisors are often the first professionals a trustee calls.

Red flags you might notice:

• Incomplete records

• Informal cash transfers

• Delayed tax filings

• Inconsistent treatment of beneficiaries

Early intervention can prevent litigation later.

Helping a trustee understand their fiduciary obligations protects not only the beneficiaries - but the trustee personally.

The Bottom Line

Most trustee problems are preventable.

Trouble typically stems from:

• Lack of structure

• Poor communication

• Emotional decision-making

• Avoidance.

Serving as a trustee is an act of service - but it is also a legal responsibility.

With proper guidance, documentation, and transparency, administration can proceed smoothly.

Without it, even well-intentioned trustees can find themselves facing formal demands, court petitions, or personal liability.

Clarity, communication, and professional support are the best protections a trustee has.