Understanding the Trustee’s Duty to Segregate Assets

A trustee should be someone who is organized, honest, and capable of communicating effectively with your beneficiaries. In addition to follow the rules you’ve put forward in your trust, you also want a professional person who is mindful of the relevant laws and requirements of trust management.

There are numerous fiduciary duties that impact a trustee. A trustee must act with the highest order of ethics and integrity because of the important role they play in administering a trust. One of these duties is the duty to segregate assets and keep the trust assets separate from their personal assets. Trying to separate what is owned by the trust or the estate from what is individually owned by the fiduciary in their own personal account can be challenging. There is also the possibility that a fiduciary could accidentally access the trust funds for their own use.

A trustee should know from the beginning that they cannot commingle funds and that good accounting structures can help prevent this from happening. Keeping everything in one place makes things simple not just for the trustee, but for any beneficiaries who are concerned that the trustee is commingling funds.

The primary purpose for not co-mingling funds is because it creates a problem with accounting. If all transactions are put through the account daily or weekly, accounting for even just interest can be problematic from an accounting perspective and it would also be expensive and drain the value of the trust to hire an accountant to attempt to fix these issues. As a result, it is strongly recommended and within the fiduciary’s legal duties to separate their personal assets from the assets of the trust. Doing this from day one will make things much easier and reduce the possibility of conflicts or confusion.

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