Most people who agree to serve as a trustee or executor say yes for personal reasons. A parent asked, or a sibling did, or the will simply named them and nobody gave it much thought at the time. What tends to catch people off guard is how much of the job turns out to be tax work, and how little room there is for error once you’re in the middle of it.

Trustees and executors can be held personally liable for tax mistakes, and that includes honest ones. Below are the issues that come up most often, along with what it takes to stay ahead of them.

Not Understanding Which Tax Return Forms Are Due

Trustees often face a more complex tax situation than executors. A trustee may need to file multiple types of tax returns on behalf of the trust. And in some cases, an executor may need to file tax returns as well. These are some of the most common:

Form 1041

If a trust generates income, the trustee may need to file the federal Form 1041 (U.S. Income Tax Return for Estates and Trusts) with the IRS.

Form 706

For 2026, the lifetime gift and estate tax exemption is $15 million ($30 million for married couples). If the value of the estate exceeds the exemption, the executor may need to file IRS Form 706 (United States Estate and Generation-Skipping Transfer Tax Return).

Form 1040

In some cases, an executor may need to file Form 1040 (U.S. Individual Income Tax Return) on behalf of the decedent.

Distributing Assets Too Early

If you’re a trustee or executor responsible for handling asset distribution, you might understandably be eager to pass the decedent’s assets on to their beneficiaries.

However, the law requires a trust or estate to pay off its outstanding debts (including tax liabilities) before paying out benefits. If the estate or trust doesn’t have enough to pay all of its debts, the Federal Priority Statute (31 U.S.C. § 3713) requires that debts owed to the government be paid first.

This is one of the most important tax issues for trustees to avoid. If an executor or trustee uses estate or trust assets to pay other debts (or distributes them to beneficiaries) without paying taxes due first, they could be held personally liable.

Many executors and trustees don’t realize that they may be held personally liable for honest mistakes. In many situations, it’s advisable for them to seek the help of an experienced trust administration attorney. The executor or trustee retains authority and decision-making power, but their attorney can offer valuable legal guidance and help them avoid costly mistakes.

Missing the Deadline for Property Tax Reassessment Exclusions

In 2021, California’s Proposition 19 became effective. This new bill helped many types of homeowners avoid excessive property taxes, but it was especially valuable for children inheriting their parents’ primary residence.

If certain qualifications are met, the adult child occupying the new home will not have to pay additional property taxes (above what their parent paid):

• The parent must have used the home as a primary residence
• The child must make the inherited home their primary residence within a year of transfer
• The child must file for a homeowners’ exemption within a year of the transfer

If the market value of the home exceeds a specific threshold (typically the taxable value plus a statutory allowance, which is $1,044,586 as of 2026), the child may owe increased property taxes.

The specific tax form the child must file is called BOE-19-P (Claim for Reassessment Exclusion for Transfer Between Parent and Child Occurring On or After February 16, 2021). The form must be filed with the office of the County Assessor where the property is located.

If the form isn’t filed on time, the beneficiary who receives the home may still benefit from the property tax exclusion. However, a late BOE-19-P means the beneficiary may pay more property tax than they need to. Instead of being applied starting on the day the home was transferred, the exclusion will be applied starting in the year the form was filed.

Failing to Obtain an EIN for Irrevocable Trusts

If you’re the trustee of an irrevocable trust, one of the most important steps to take is obtaining an employer identification number (EIN) from the IRS. This number works like a Social Security number for the trust, and it’s essential for filing Form 1041. It’s also needed if you open a trust bank account.

The IRS makes it easy to obtain an EIN for a trust. It can be done online for free and in just a few minutes.
If a trustee fails to create an EIN for the trust, it may lead to a host of issues:

• Late filing fees and penalties from the IRS
• Possible freezing of trust assets
• Inability to open financial accounts in the trust’s name
• Serious delays in distributing assets to beneficiaries

As a trustee, you should never use your own Social Security number for the trust. This may lead to personal liability, tax filing issues, and delays in asset distribution.

Not Seeking Professional Assistance for Trust Administration

We noted the importance of seeking the assistance of a trust and estate attorney above. However, depending on your situation, it might be necessary to coordinate with more than one professional.

For trusts and estates with complex tax pictures, working with a CPA, a financial advisor, or both may help you avoid stress, confusion, and delays. Crucially, it can also protect you from being held liable for unintentional errors.

Our trust and estate attorneys often coordinate with these professionals on your behalf, saving you time and effort.

Need Help Avoiding These Tax Issues for Trustees?

You don’t have to be a tax professional to serve as a trustee or executor, but the tax obligations don’t really care either way. A form that gets filed late, or a distribution that gets made a few weeks too early, can end up landing on you personally, even when the mistake was an honest one. And in most cases, it is an honest one.

That’s usually where we come in. At KJMLAW Partners, we work with trustees, executors, and families throughout Pasadena on the administrative side of trusts and estates. When the tax picture is complicated enough to warrant it, CPAs and financial advisors are brought in as well, so that nothing ends up getting overlooked.

If you happen to be in the middle of administering a trust or settling an estate right now, it’s probably worth calling us before the next deadline rather than after it. We can walk you through what’s actually being asked of you.