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This is part two of a five-part series on the most common errors and issues that can arise in the administration of a trust upon the death or disability of the trustors.
Commingling funds is when one or more parties blend or mix funds from different sources into one or more accounts. In a trust administration, this can occur in a number of different ways. For example, this can occur when a trustor puts child on a trust account, or a trustee places a spouse or child on a trust asset. The most common occurrence is when a successor trustee does not put in place the proper safety precautions to prevent the commingling of funds, such as opening an account with a trust tax identification number, placing trust funds in a personal bank account, or using their own money to prop up an asset rich but cash poor trust.
Often in these cases, there is no ill will, malicious intent, or desire to harm others behind the actions, but comingling occurs because of inadvertence or a lack of knowledge of a trustee’s legal obligations. Failure to keep accounts, assets, and funds appropriately segregated can cause untold heartache for all involved.
The trustee operates in a fiduciary capacity, meaning all legal obligations are the legal responsibility of the trustee and the trustee cannot (except in limited circumstances) delegate these obligations to third parties. Failure to comply with these obligations can result in sanctions, removal of trustee, and in extreme cases, result in charges and convictions of elder/dependent adult abuse.
Prevention is Key
The best way to avoid the possibility of commingling of funds is to speak with a practiced attorney who can help walk you through the process of administering a trust and help teach you how to avoid the comingling pitfalls.
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The information provided herein does not, and is not intended to, constitute legal advice; instead all information, content, and materials are for general informational purposes only. Neither this website nor this post are intended to create an attorney-client relationship.
If you have questions on the appropriate segregation of funds to avoid the argument or accusation that the trustee has commingled funds, please give Victor Herrera or our estate planning team a call at (805) 546-8785. They can help walk you through the process of administering a trust and help teach you how to avoid the comingling pitfalls. For more details, please read our full disclaimer.