Administering a Trust or Estate involves more than just handing out money. It means you must follow specific legal and tax laws and rules of procedure, stay organized, and act in good faith. When fiduciaries, such as a Personal Representative administering a Probate Estate or a Trustee handling a Trust Administration ignore professional advice or skip key steps, they expose themselves to personal liability, delays, and unnecessary taxes.
Whether you’re serving as a Trustee or Personal Representative, consider these best practices to help avoid common mistakes and reduce the risk of liability:
DO:
- Consult legal and tax professionals early. Consult and retain an attorney and an accountant as soon as reasonably possible, most importantly before taking any Probate or Trust Administration action, to help you avoid missteps and also to ensure compliance with Maryland Trust and Probate laws and Maryland and Federal tax laws, as applicable.
- Fulfill your fiduciary duties and document everything. As a Trustee or Personal Representative, you must act in the best interests of all beneficiaries and place the Estate or Trust’s needs above your own. Make decisions that are fair, well-reasoned, and properly documented. In Maryland, fiduciaries must maintain detailed records of all income, expenses, and distributions throughout the administration. Failing to do so can delay closing the Estate or Trust, trigger beneficiary disputes, or result in a court-ordered accounting. When you manage assets, sign documents, or disburse funds, approach every action with transparency, care, and accountability.
- Communicate with the beneficiaries. Update the beneficiaries regularly. Clear communication builds trust and reduces the chances of dispute. If you face strained communication with beneficiaries or Trustee(s), consider working through an attorney or neutral third party to relay updates and avoid unnecessary conflict. Best practice is to always inform your attorney of any pressure from beneficiaries.
- Distribute estate monies after all debts, taxes, and expenses have been paid. Pay all valid debts, administrative expenses, and applicable taxes before distributing any assets to beneficiaries. In Maryland, both Trustees and Personal Representatives have a legal obligation to settle the Estate or Trust’s liabilities first. If you distribute funds too early, and there aren’t enough remaining assets to pay final expenses or inheritance taxes, you may be held personally liable for the difference. Always verify that the Estate or Trust is fully solvent before making any distributions.
DON’T:
- Don’t comingle funds. Open a separate non-interest-bearing checking account for the Estate or Trust. Never deposit or transfer fiduciary funds into your personal account, even temporarily. Commingling funds violates your fiduciary duty under Maryland law and may raise red flags with the court or beneficiaries. Keeping finances separate protects you and preserves the integrity of the administration.
- Don’t favor certain beneficiaries. Treat all beneficiaries according to the terms of the Will or Trust. If the document requires equal distributions, do not advance money to one person ahead of others. Favoritism or selective communication often leads to objections, delays, or legal claims of breach of fiduciary duty, especially in contentious families.
- Don’t assume it’s simple. Even modest Estates or Trusts may involve complicated rules, especially when real estate, retirement accounts, or blended families are involved. You may need to deal with capital gains issues, titling problems, or conflicting beneficiary designations. Always consult with professionals before making major decisions.
- Don’t rush distributions. Wait to distribute until after you’ve paid all taxes, debts, and administrative expenses. Under Maryland law, distributing funds too soon can expose you to personal liability. Creditors and taxing authorities (including the Maryland Comptroller and the Register of Wills) may still have enforceable claims. Always confirm that all obligations are resolved before making final distributions.
Every decision you make during Estate or Trust Administration carries weight. By following legal advice, procedures, and maintaining accurate records, you reduce risk and fulfill your legal duties. Maryland law holds fiduciaries to high standards, but with the right guidance, you can protect yourself, honor the decedent’s wishes, and avoid costly mistakes.
If you are interested in learning more about options to protect you and your loved ones, please call us to schedule an appointment. (410) 988-3973. www.TheCoxLawGroup.com
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This blog post is for informational purposes only and does not constitute legal advice. For guidance on your specific situation, please consult an attorney licensed in your jurisdiction.