Avoiding the 12 Most Common Trustee Mistakes: A Guide for Doing the Job Right

Serving as a trustee can feel like stepping into a whole new world — one filled with legal terms, financial responsibilities, and people looking to you for answers. Even if you’re careful and well-intentioned, it’s surprisingly easy to make mistakes that can create headaches, cost money, or even lead to legal trouble.

The good news? Most of those problems are avoidable if you know what to watch out for.

This guide breaks down 12 of the most common missteps trustees make and how to sidestep them. Each section explains what the mistake is, why it matters, and how you can prevent it. You’ll also see illustrative scenarios that make the concepts easy to picture in real life.

1. Not Reading the Trust Carefully

The trust document is your rulebook, your roadmap, and your set of instructions all in one. It spells out what you can and cannot do, the timing of distributions, how certain assets should be managed, and special conditions you must follow. Skimming it once and assuming you’ve got it down is a recipe for oversight. Missed clauses can lead to accidental violations of the trust’s terms, delayed administration, and even legal action against you. The trust might contain very specific requirements — like mandatory quarterly income payments, restrictions on selling certain property, or provisions for special-needs beneficiaries — and missing them can cause real harm.

Example: Imagine a trustee misses a clause requiring income to be paid quarterly. Instead, they issue one large payment at the end of the year. This not only violates the trust but could also cause unwanted tax consequences for the beneficiaries.

What to do:

• Read the trust document from start to finish — twice.

• Highlight important dates, restrictions, and unclear sections.

• Consult an estate planning attorney for help interpreting complex provisions.

2. Mixing Trust Money with Personal Money

Keeping trust funds separate from your personal funds isn’t just good practice — it’s the law. This separation ensures that the trust’s finances remain transparent and easy to track. Mixing funds, even temporarily, is called “commingling” and can quickly erode trust with beneficiaries. It makes accounting more complicated and may open you up to allegations of misuse, even if you never intended to do anything wrong. Commingling can also create tax headaches and make it harder to prove your decisions were proper.

Example: Picture a trustee who receives a $50,000 trust check but doesn’t have the trust account ready yet. They deposit it into their personal account “just for a few days.” Even if they later transfer it to the correct account, this decision could raise red flags during an audit or in court.

What to do:

• Open a dedicated trust bank account as soon as possible.

• Deposit all trust income into that account only.

• Pay all trust expenses directly from the trust account.

• Keep personal and trust receipts completely separate.

3. Sloppy Record Keeping

Trustees are responsible for keeping clear, detailed records of every action they take on behalf of the trust. This includes income received, expenses paid, communications with beneficiaries, and major decisions. Without organized records, you could struggle to provide an accurate accounting — and in many states, beneficiaries have a legal right to demand one. Poor record-keeping can also make you vulnerable to accusations of mismanagement.

Example: Suppose a trustee lists a $7,000 “miscellaneous expense” in the annual accounting but has no receipts or notes explaining it. Even if it was legitimate, the lack of documentation could mean they have to reimburse the trust personally.

What to do:

• Use accounting software or a well-organized spreadsheet.

• Save every receipt, invoice, and bank statement.

• Keep copies of all correspondence, both paper and email.

• Back up your records in a secure location.

4. Keeping Beneficiaries in the Dark

Trust administration often takes months or years, and beneficiaries understandably want to know what’s happening with the assets they’re entitled to. When a trustee provides little or no communication, it creates uncertainty and distrust. Even if you’re doing everything right, a lack of updates can make it look like you’re hiding something. Regular communication keeps everyone on the same page and reduces the risk of disputes.

Example: Imagine beneficiaries go six months without hearing anything about the trust. In the absence of information, they assume the trustee is being slow or careless — even if the trustee has been diligently working the whole time.

What to do:

• Send regular updates (monthly or quarterly works well).

• Share expected timelines for major steps.

• Answer reasonable questions in a timely, professional manner.

5. Forgetting About Taxes

Trusts often have their own tax obligations, which are separate from the personal taxes of the trustee or beneficiaries. These might include annual income tax returns (Form 1041 in the U.S.), state filings, and possibly estate tax returns. Missing deadlines can lead to penalties, and in some cases, trustees can be held personally liable for those costs. Understanding the trust’s tax responsibilities early on is key to avoiding costly mistakes.

Example: Picture a trustee who doesn’t realize the trust must file its own tax return. By the time they find out, the deadline has passed, and penalties are already stacking up.

What to do:

• Apply for an Employer Identification Number (EIN) if the trust is irrevocable.

• Hire a CPA experienced in trust taxation.

• Mark tax deadlines on your calendar well in advance.

6. Making Risky Investments

As a trustee, you have a duty to manage trust assets prudently. That means making investment decisions with care, diversifying holdings, and following the “prudent investor rule.” You’re not there to chase high-risk, high-reward opportunities — you’re there to protect and grow the trust in a safe, responsible way. Poor investment choices can deplete the trust’s value and leave you personally liable for the losses.

Example: Imagine a trustee invests a large portion of the trust in a single, speculative stock because they believe it will “definitely” perform well. When the stock price tanks, the trust’s value drops significantly, and beneficiaries are left with less than they should have received.

What to do:

• Follow the investment guidelines in the trust.

• Diversify across different asset types.

• Document the reasoning behind each investment decision.

• Seek professional advice before making major changes.

7. Showing Favoritism

Even if the trust calls for unequal distributions, your duties as a trustee require you to treat all beneficiaries fairly in terms of process, communication, and opportunity. Favoring one beneficiary over another — whether in speed of distributions, sharing of information, or responsiveness — can cause disputes and accusations of bias.

Example: Suppose a trustee sends one beneficiary their distribution right away but delays the others without explanation. Even if the delay has a legitimate reason, the lack of consistency could cause suspicion.

What to do:

• Share updates with all beneficiaries at the same time.

• Apply the same procedures for each distribution.

• Keep detailed records showing you acted impartially.

8. Dragging Your Feet

Trust administration has a lot of moving parts, but avoidable delays can harm the trust’s value and frustrate beneficiaries. Assets might lose value, deadlines might be missed, or property might deteriorate without timely action. Being proactive keeps things running smoothly and shows beneficiaries you’re taking your role seriously.

Example: Imagine a trustee waits over a year to sell a vacant lot owned by the trust. In that time, the real estate market drops, and the trust’s potential profit is cut in half.

What to do:

• Create a timeline for the first 30, 60, and 90 days.

• Address time-sensitive tasks first.

• Set your own deadlines ahead of legal requirements.

9. Not Understanding Your Legal Duties

Beyond following the trust’s instructions, you have a fiduciary duty — the highest standard of care in the law. This includes acting loyally, prudently, and honestly, and always in the beneficiaries’ best interests. You must avoid conflicts of interest and cannot use trust assets for personal gain unless the trust explicitly allows it. Misunderstanding these duties can lead to serious legal and financial consequences.

Example: Think of a trustee who uses trust property for personal purposes without authorization. Even if the trust document doesn’t directly forbid it, this could still be a breach of fiduciary duty.

What to do:

• Learn your state’s trustee laws.

• Document significant decisions.

• Avoid any situation where you could benefit personally without clear permission.

10. Trying to Do It All Yourself

Many trustees hesitate to hire professionals, thinking they’ll save the trust money. But legal, tax, and investment matters are complex, and mistakes can be far more costly than professional fees. Knowing when to seek help is part of being a good trustee.

Example: Imagine a trustee decides to prepare the trust’s tax return without help. They make errors that lead to several thousand dollars in penalties — far more than a CPA would have charged.

What to do:

• Hire experts for specialized matters.

• Keep a record of professional advice.

• Treat professional fees as an investment in protecting the trust.

11. Overlooking Special Assets

Not all trust assets are straightforward. Some require ongoing management, specialized knowledge, or compliance with specific regulations. These include small businesses, rental properties, intellectual property like patents, and special-needs trusts. If these assets are handled like ordinary investments, they could lose value or trigger legal problems. The key is recognizing these “special assets” early and making a plan for their care.

Example: Picture a trustee who forgets to renew a patent owned by the trust. Once it expires, its value is gone forever.

What to do:

• Identify unusual assets right away.

• Learn their management requirements.

• Hire specialists when needed.

12. Letting Emotions Take Over

Trustees often serve for family or close friends, which can make the job emotionally charged. Strong feelings — whether positive or negative — can cloud judgment and lead to decisions that appear biased. Even if your intentions are good, you must separate personal feelings from your trustee duties.

Example: Imagine a trustee delays a distribution to a beneficiary they don’t get along with, using a vague excuse. Even if they believe they’re acting in the trust’s best interest, it could easily be seen as favoritism or retaliation.

What to do:

• Base decisions on facts and the trust document.

• Keep personal opinions out of trustee matters.

• If needed, consult a neutral professional for perspective.

Final Thoughts

Most trustee mistakes stem from acting too quickly, not fully understanding the role, or trying to do everything alone. If you slow down, communicate clearly, keep detailed records, and get professional help when needed, you’ll not only protect yourself but also the trust and its beneficiaries.