A trust is a fiduciary arrangement wherein one party, called the trustor, gives a second party, the trustee, the right to hold assets on behalf of a third party, the beneficiary. They are designed to provide legal protection for the trustor’s assets and to oversee the distribution of assets in accordance with the wishes of the trustor.
Trusts have several benefits, one of which is that they usually avoid probate, saving time and money. They also provide control over your wealth, as you can specify the details of when and to whom the distribution of assets is made. They also provide much more privacy than probate proceedings, which are a matter of public record. Trusts, on the other hand, can be kept private.
What Are Annual Trust Accountings?
One of the requirements of a trustee is that they must always be prepared to produce an accounting of trust assets. This gives the beneficiary a clear sense of the trust’s activities, as trust accounting should provide a detailed look at the current income balance, any gains or losses, expenses, sales, and any other activity up to that point.
Not all trusts are the same, as some require annual accountings, while others only require accountings when the beneficiary requests it. Even if it is not strictly required, a trustee may find it is in their best interest to provide annual trust accountings. This allows a trustee to prove they are doing their job correctly and can protect against litigation.
Are Trusts Litigated?
Trusts can indeed be litigated, and a trustee who fails to perform their duties properly can face serious repercussions. In Texas, a trustee is not required to file annual trust accounting unless specified within the trust itself. However, even without this requirement in place, a court can compel a trustee to retroactively provide the accountings if the trust is contested or there is suspicion the trustee may be guilty of fraud or misuse of trust funds. The best way for a trustee to avoid litigation is to keep detailed records of any action taken concerning the trust.
If a trustee fails to provide the proper documentation and accountings, they may be removed from their position. In addition, if there is a failure to maintain proper records or false information is provided to the beneficiary, a trustee may be held personally liable.
A trustee is forbidden from gaining an advantage either directly or indirectly from a trust unless the trust specifically states otherwise. If a trustee is found to have violated this rule, a lawsuit can be brought against them to recover any damages.
What Are the Risks of Not Having Annual Trust Accountings?
Because Texas does not require it, a trustee may decide not to provide annual trust accountings. However, accepting the role of trustee comes with significant risk, and annual trust accountings are one of the best ways to protect yourself from lawsuits and liabilities.
Annual trust accountings must be signed off on each year by the beneficiary, thereby signaling that the report is accurate. This immediately releases a trustee from any liability related to the management of the trust during that year.
Trusts and their accountings are complex and potentially risky without the proper guidance. For the help you deserve, call us now at 281-771-0560.