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How Trustees Protect Themselves When Making Decisions About the Trust

We get the question, time to time, how do I as a trustee make a big decision that impacts the trust from a financial standpoint and get protection for making that decision so that the trust beneficiaries don’t later on down the road sue me for that decision?

Here’s a brief example.  A trustee is going to sell the trust asset, the primary trust asset, which is a family home that the parents lived in.  Now the parents have died and the trustee needs to sell that asset.

The trustee did not get an appraisal on that asset.  But the next-door neighbor has made a very generous cash offer that’s to close within thirty days.  The trustee wants to accept the offer, but is afraid that the trust beneficiaries may later say that the trustee should have got an appraisal and should have asked for more money than the neighbor had offered.

And even though the trustee believes this is a good deal for the trust, the trustee wants some protection.  So there are really two options here that are available to the trustee.  And the one that many people choose to do is to go get a court order, which takes a lot of time and effort, but you get a court order from a judge saying you can accept the offer from the neighbor.  There’s nothing better than that. The best insurance policy you can get is a court order.

Notice of Proposed Action

There is a shortcut that can work under the right set of circumstances and it’s called a notice of proposed action.  Here the trustee puts the beneficiaries on notice that there is a cash offer, what the terms of the cash offer are, that the trustee believes this is full, adequate, fair compensation for the house and that there’s a short period of time within which to accept the offer.  And then leaves it up to the beneficiaries to either consent or not consent to that notice of proposed action.

If just one of the beneficiaries does not consent to the notice of proposed action, the trustee will not act.  The Trustee will then, more than likely, have to go to court to get a court order.  But by then, the offer from the neighbor may be gone.  It doesn’t matter, the trustee has protected themselves.  The notice of proposed action gives the trustee a quick way to get consent from all the trust beneficiaries, and at the same time protecting them down the road from claims that they (1) didn’t make disclosures to the beneficiaries, and (2) didn’t get their consent prior to making a decision to sell the trust asset.