10 Common Trustee Traps (Plus 1) Under Nevada Law — and How to Avoid Them

Brian P. Eagan, Esq. Partner

Serving as trustee of a Nevada trust is both an honor and a serious legal obligation. Nevada’s trust laws – particularly those found in NRS Chapters 163, 164, and 165 – establish strict fiduciary standards. Trustees must act prudently, communicate transparently, and keep accurate records. Understanding the common pitfalls can protect you, the beneficiaries, and the trust itself.

1. Not Realizing You’re the Trustee—or What That Means

Many successor trustees first learn of their appointment only after the settlor (the trust’s creator) has passed away or become incapacitated. This can cause months of inaction, unpaid bills, and missed tax filings.

The trustee is the person responsible for administering the trust according to its terms and Nevada law. Before taking control, read the entire trust instrument. Legal terms such as “issue” or “per stirpes” have specific meanings that affect who inherits. If you feel unprepared, you may decline the appointment or seek help from an experienced Nevada trust attorney. The role demands diligence, not sentimentality.

2. Failing to Act Promptly

Once you accept the trusteeship, you must take charge quickly. Nevada law requires trustees to act in good faith and with reasonable care in managing trust property. That means safeguarding assets, obtaining appraisals, securing insurance, collecting income, and filing necessary tax documents without delay.

Inaction can result in late fees, loss of value, and even personal liability. The law does not distinguish between harm caused by what you did and harm caused by what you failed to do.

3. Ignoring Family Dynamics

Trustees don’t just manage property—they manage people. Disputes among siblings or beneficiaries can derail an otherwise straightforward administration. Nevada courts see many cases where one child acts as both trustee and beneficiary, prompting others to allege favoritism or undue influence. Anticipate emotional dynamics early and communicate often. If tensions are high, consider hiring a neutral professional fiduciary or retaining a trust attorney to buffer communications.

4. Failing to Communicate with Beneficiaries

Nevada law requires trustees to keep beneficiaries reasonably informed about the trust’s administration and material facts necessary to protect their interests. It is highly advisable that a trustee notify beneficiaries of the trust’s existence and provide them with a copy of the trust within 90 days after assuming duties or upon a settlor’s death.

A lack of communication invites suspicion. Update beneficiaries regularly about property sales, investments, and anticipated timelines. When in doubt, err on the side of disclosure. Transparency is your best protection.

5. Ignoring Beneficiaries’ Rights to an Accounting

Nevada imposes a continuing duty on trustees to keep clear and accurate records. NRS Chapter 165 sets forth procedures for formal accountings, allowing beneficiaries to demand a detailed written accounting of all receipts, disbursements, and distributions.

An accounting must show every asset, expense, and transaction. Beneficiaries may petition the court to compel one if the trustee fails to comply. Failure to account is among the most common—and costly—breaches of fiduciary duty. Maintaining current books and bank statements not only satisfies the statute but also discourages unfounded accusations.

6. Treating Trust Assets as Your Own

Under Nevada law, trustees owe a fiduciary duty of loyalty, good faith, and impartiality. You cannot borrow from, commingle, or personally benefit from trust property. Even a small “loan” from the trust—paid back later—violates this duty and can expose you to civil and criminal penalties.

If you are also a beneficiary, you still must treat all beneficiaries equally. Any transaction in which you have a personal interest requires full disclosure and, often, beneficiary consent or court approval.

You are entitled to reasonable compensation for the work you perform on the trust’s behalf, but payment must reflect documented services actually performed and be disclosed in your accounting.

7. Failing to Meet the “Reasonable Person” Standard

Nevada law judges trustees by the standard of a “reasonable person” exercising ordinary care, skill, and caution. Under the Nevada Uniform Prudent Investor Act, trustees must invest and manage assets prudently, balancing risk and return, diversification, and liquidity needs.

Keeping written records of your investment decisions—and seeking advice from licensed advisors—demonstrates compliance. Judges have wide discretion in trust matters, so detailed documentation of your reasoning is critical evidence of prudence.

8. Losing Credibility with Beneficiaries

Trustees live under scrutiny. One unexplained transaction can erode confidence. Always disclose decisions in writing and maintain accurate books to the penny. Nevada law requires that accountings be clear enough for any reasonable person to understand. Providing regular updates builds trust and reduces the risk of litigation.

9. Overreliance on No-Contest Clauses

Nevada allows “no-contest” clauses which penalize beneficiaries who challenge the validity of a trust. However, these clauses do not shield trustees from breach-of-duty claims. Beneficiaries may still petition the court to enforce the trust or remove the trustee.

A well-drafted trust usually authorizes the trustee to use trust assets to defend the trust and pay professional advisors. But misuse of funds for self-defense in bad faith can result in personal liability. When conflict arises, engage qualified legal counsel immediately.

10. Relying on the Wrong Advisors

CPAs and financial planners are valuable, but they cannot interpret or apply Nevada trust law. Many trustees mistakenly rely on tax or investment professionals for legal guidance, only to discover later that key procedural steps were missed. Consult an attorney experienced in Nevada trust administration—ideally before taking action.

If a trust is large or complex, consider appointing a corporate trustee or private professional fiduciary licensed and bonded under Nevada law. They understand record-keeping, statutory timelines, and fiduciary compliance. Even so, the family should monitor their performance and require periodic accountings under Chapter 165.

11. Underestimating Court and Administrative Delays

Although living trusts often avoid probate, certain issues of trust administration, including the determination of disputes, may still require court approval. Nevada’s district courts, particularly in Clark County and Washoe County, can experience lengthy delays. Trustees must manage cash flow and beneficiary expectations accordingly.

Nevada law also permits nonjudicial settlement agreements – a faster, less costly way to resolve certain disputes without court involvement. A knowledgeable attorney can guide you through this process.

Key Takeaways for Nevada Trustees

• Understand your authority and duties under NRS Chapters 163–165.
• Act promptly to secure and safeguard trust assets.
• Keep beneficiaries informed.
• Provide full accountings in compliance with NRS Chapter 165.
• Avoid self-dealing or using trust property personally.
• Invest trust assets prudently.
• Document every action and retain receipts and correspondence.
• Consult qualified counsel before making major decisions or distributions.
• Resolve disputes efficiently, using nonjudicial settlements when possible.

Bottom Line

Nevada offers trustees broad flexibility—but demands strict accountability. By following Nevada law, seeking competent legal counsel, maintaining detailed records, and communicating openly with beneficiaries, you can fulfill your fiduciary obligations confidently and avoid the traps that often lead to conflict, liability, and litigation.