Losing loved ones is emotionally challenging, and dealing with their estate can often feel overwhelming. When appointed as a trustee, handling the responsibilities diligently and ensuring the smooth transition of assets is crucial. However, certain common mistakes can occur if the trustee fails to fulfill their duties properly. This is a list of some of the mistakes that I have seen.

Failure to Verify Property Ownership or That The Property Is In The Trust

One critical mistake a trustee can make is neglecting to confirm whether the house is held within the trust. This step should be taken before mom or dad pass away and at about the time when the executor and family members agree that mom or dad needs assisted living or help with their day-to-day activities. Failing to check the property’s ownership can lead to complications in transferring its title, potentially causing delays and legal complications during the estate settlement process. It is essential for trustees to review the trust documents carefully and consult legal professionals to ensure all assets, including the house, are properly included.

Neglecting to Notify Financial Institutions

Another common error is the trustee’s failure to promptly inform banks and financial institutions about the parents’ passing. For example, in one situation, the executor had been handling their parent’s finances for many years. After mom and dad passed, they kept paying the mortgage but never called the bank to let them know. This oversight can delay access and cause significant issues, especially when the estate involves ongoing financial matters or pending escrow. Contacting the banks, credit card companies, and other relevant institutions is crucial to expedite the estate settlement process.

Lack of Appraisal for Step-Up in Basis

The trustee’s failure to obtain a professional appraisal for the house at the time of the parent’s death can have significant financial implications. The house’s value is critical for determining the step-up in basis, which affects the capital gains tax liability when the property is sold in the future. By not acquiring an appraisal, the trustee may inadvertently increase the beneficiary’s tax burden, potentially resulting in financial losses.

Neglecting to Update Homeowner’s Insurance

An often overlooked responsibility of the trustee is updating the homeowner’s insurance policy after the parents’ passing. Failing to notify the insurance company that no one is living in the house can lead to coverage gaps, leaving the property vulnerable to risks such as fire, theft, or other damage. The trustee should promptly contact the insurance provider and adjust the policy to safeguard the property.