INSIGHT

Understanding Your Trust: A Guide for New Trustees

Natalie Keam • July 21, 2026

Services: Fiduciary Accounting

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If you have recently been named trustee, you may be facing a stack of paperwork, a list of unfamiliar terms like principal, income, and fiduciary duty, and very little guidance on where to start. This often happens at a difficult time, while managing grief or family dynamics on top of the practical demands of settling an estate.

To put your best foot forward, you need to know what your role involves, where new trustees commonly run into trouble, and when it makes sense to seek trust administration support.

What Does It Mean to Be a Trustee?

A trustee holds and manages assets on behalf of someone else, following the instructions laid out in the trust document. That document is your starting point for every decision you make, from how assets are invested to when and how distributions go out to beneficiaries.

Along with that authority comes a fiduciary duty, a legal obligation to act in the best interests of the people the trust is meant to benefit. In many trusts, this means balancing the needs of two different groups: current income beneficiaries, who receive what the trust earns, and remainder beneficiaries, who will receive what remains in the trust once it terminates. These groups do not always want the same thing, and part of your job is managing that tension fairly, a duty often referred to as the duty of impartiality.

Your Core Responsibilities as Trustee

Before the ongoing accounting work begins, most new trustees need time to get oriented. That typically starts with:

• Locating the trust document and any amendments
• Identifying who the beneficiaries are
• Opening a bank account in the name of the trust so that trust funds stay separate from your own.

How long the overall administration takes varies widely. A straightforward trust with one beneficiary might wrap up within a year, while a trust with multiple beneficiaries, real estate, or ongoing distributions can continue for years. Once that groundwork is in place, most trustees can expect to handle the following on an ongoing basis.

Following the Trust Document

This is the foundation for every other responsibility on this list. If a provision is unclear, ask the attorney who prepared the trust or drafted the estate plan for guidance before acting.

Notifying Beneficiaries

Most states require trustees to notify beneficiaries once a trust becomes irrevocable, typically after the grantor’s death. Beneficiaries who feel uninformed are more likely to raise concerns later, so this step matters more than it might seem.

Tracking Principal and Income Separately

Trust accounting requires a strict separation between the assets that fund the trust (principal) and what those assets generate, such as interest, dividends, or rental income. How a transaction is categorized can directly affect what each beneficiary receives.

Maintaining Detailed Records

Every receipt, disbursement, and investment decision should be documented in a way that supports a fiduciary accounting report if one is ever requested by beneficiaries or a court. It’s important to keep detailed records of the date, amount, purpose/nature, payor/payee, and method of payment.

Preparing Fiduciary Tax Filings

Trusts that generate income typically need to file Form 1041, along with K-1s for each beneficiary reporting their share of that income. In California, principal and income allocations are governed by the Uniform Fiduciary Income and Principal Act (UFIPA), which sets the framework trustees follow when classifying transactions between the two. Getting this classification right is important because it directly shapes the mistakes trustees most often run into.

3 Common Mistakes New Trustees Make

Even well-intentioned trustees can make trust administration mistakes in a few predictable areas.

1. Loose or Incomplete Records

Commingling trust funds with personal accounts, failing to document distributions, or losing track of receipts can leave you without the documentation needed to demonstrate the trust was managed properly. If a beneficiary later questions a decision, your records are often your best defense.

2. Misclassifying Principal and Income

Capital gains, stock dividends, and rental income each carry different tax treatment and different rights for beneficiaries. Getting these allocations wrong, even unintentionally, can result in one beneficiary receiving more than they are entitled to at another’s expense, and it is one of the more common sources of disputes between beneficiaries.

3. Missing Tax Deadlines

Late or incorrect fiduciary tax filings can create financial consequences for the trust and, by extension, for the beneficiaries who rely on it. These mistakes typically happen when a trustee is managing the role on top of a full-time job, a grieving family, and a learning curve that few people are prepared for.

When Trustees Need Professional Support

Asking for help as a trustee is not a sign that something has gone wrong. It is often the most practical decision you can make, particularly when the trust holds complex assets. Working with a fiduciary accountant can help you:

• Prepare the formal accounting and supporting schedules
• Document principal and income allocations correctly
• Handle Form 1041 and beneficiary K-1 filings
• Give you a clear picture of where things stand at any point in the administration

This support does not take the role away from you. It gives you the technical backup to carry out that role with confidence. BPM’s fiduciary accounting services help trustees, executors, and their legal counsel to bring structure and accuracy to trust administration, from the first accounting period through final distribution. If you have recently been named trustee, BPM’s Private Client Services team can help you get started. Contact BPM to learn more.