9 Steps to Trust Administration
After the death of the Settlor (the person who established a trust), the person who has been named as the Successor Trustee must administer the trust. The average person who has been named as the Successor Trustee has little experience with this job. There are numerous tasks to be taken care of and it can be overwhelming. This is why a Successor Trustee should hire an attorney and other experts to assist them with the administration.
A Small Amount of Background Info
A trust is a legal relationship, put into writing with a document called a “Declaration of Trust” or a “Trust Agreement.” The person who has established the trust is referred to as the “Settlor” and it is the Settlor that transfers property into the trust for the benefit of the person called the “Beneficiary.” The initial Beneficiary in a typical revocable living trust is the Settlor. When the Settlor passes away, the Beneficiary becomes another person or persons and/or a charity. Every trust will also have a Trustee.
During the lifetime of the Settlor, typically the Settlor is also the Trustee. If the Settlor becomes incapacitated, then someone else will take over and this person is called the “Successor Trustee.” If the Settlor maintains full capacity until death, then the Successor Trustee will only step in after the Settlor’s death. The Successor Trustee will be obligated to follow the terms of the trust when they take over. Typically, upon the death of the Settlor, the Successor Trustee will end up distributing the trust assets and winding up the affairs of the Settlor. However, if the beneficiaries are young, the Successor Trustee may have to maintain the trust assets for years to come, according to the terms of the trust.
Trust Administration Defined
Trust administration is the management of the trust and the distribution of its assets, according to the terms of the trust. Generally, the period of trust administration is not very long. In the majority of cases, the Successor Trustee will gather, then distribute property to the Beneficiaries, take care to pay the last expenses of the Settlors, and file various forms with the government, including the final tax return(s). The Successor Trustee has the responsibility to act with the highest level of trust but this job is taken care of privately, without court oversight, so the job of trust administration is frequently much faster and less expensive than probate. Typically, the term Successor Trustee is not used post-death. Instead, that person is simply referred to as the Trustee.
Trust administration is still a task that will take a considerable amount of the Successor Trustee’s time and attention, so they typically are allowed to charge a fee for services to the trust. The Successor Trustee can hire experts, including attorneys, accountants, appraisers, and real estate brokers, to help them do their job properly. While post-death trust administration does cost money, the costs are only a small fraction of the cost of probate fees.
The 9 Steps to Administering a Trust
Step 1: Send out Notices
Notices of the start of the trust administration process must go out promptly after the death. The beneficiaries in the trust are mailed a notice, as well as the “heirs at law.” Often these folks are the same people but sometimes they are different, such as in the instance of a “disinherited child.” There is a specific format for legal notice but once it is sent, any person wishing to contest the terms of the trust need to file a claim in court within 120 days of the mailing of the notice. This is why it is harder to contest a trust compared to a will. Other notices need to be given, for example, the Social Security office, the California Franchise Tax Board, and the California Department of Health Care Services. Notice to the creditors also needs to be given. In regards to the bank accounts and financial accounts, the Trustee needs to advise the banks and institutions of the death of the Settlor.
Step 2: Lodge the Will
The original will needs to be lodged with the court in the county where the decedent lives. This needs to be taken care of within 30 days of the date of death.
Step 3: Marshall the Assets
The assets in the name of the trust need to be located and an inventory made. Because the trustee is legally responsible for ensuring that the assets are not stolen, lost, or destroyed, so it is advisable to do this as soon as possible.
Step 4: Obtain Titles
The assets of the decedent need to be titled in the name of the trust prior to the death or incapacity of the Settlor in order to be part of the trust distribution. If the trustee finds assets not titled in the name of the trust this can possibly require that those “stray” assets need to be brought to the attention of the probate court (it all depends on the total value of the stray assets). If it can be shown that the stray assets were meant to be in the trust except for some mistake of the Settlor, then a Trustee can file a Heggstad Petition with the probate court to request the court order that the assets become part of the trust. If that petition is unsuccessful, then a formal probate petition will be needed before those stray assets can be distributed.
Step 5: Pay Debts and Taxes
The trustee needs to be sure that the costs of the funeral expenses are paid, along with any outstanding debts that the Settlor had at the time of death. A trustee’s failure to pay the creditors can result in the trustee becoming personally liable for those debts.
It is also the trustee’s duty to make sure that the final tax returns are filed and any taxes owed are paid. The tax planning built into many trusts needs to be considered promptly and before any distributions are made. While tax exemptions for estate taxes are so high that virtually no one has to pay them (as of the date of this blog), the laws may change in the future and the exemption amount may be lowered. Tax experts should be consulted by the trustee.
Step 6: Obtain Appraisals and Prepare for Sales
The trustee needs to have appraisals prepared for the trust assets as soon as practicable. The value of the assets at the time of death is important for determining the “cost basis” of the assets. The trustee should use an expert for the appraisals because it can make a difference for tax purposes, especially the future income taxes of the beneficiaries. Since it is typical to sell the home of the settlor, the trustee will need to hire a real estate broker and prepare the property for sale. An estate sale may be in order as well.
Step 7: Prepare a Trust Accounting
The trustee is responsible for preparing a trust accounting, according to the format mandated by the California Probate Code, prior to distributing the trust’s assets or during the initial trust administration. The purpose of the first accounting is to get a snapshot of what was owned by the trust at the time of death. If the trustee will be managing the assets for years to come, the trustee must have an accounting prepared every year. In addition, the trustee has to provide reports to the beneficiaries when asked.
Step 8: Prepare a Distribution Plan
A distribution plan is needed to ensure that the trustee will distribute the trust assets according to the terms of the trust, any applicable state law, and so that costs will be minimized. The trustee may also take a fee. The beneficiaries need to consent to the plan, in writing.
Step 9: Distribute the Assets
The typical estate plan will provide that all of the trust assets be distributed to the beneficiaries shortly after the death of the settlor. It is the trustee’s job to make the distribution happen. The trustee’s final steps include preparing the title documents to transfer properties into the name of the beneficiaries for unsold assets and to write checks for the beneficiaries for the cash assets.
As you can see, the job of the Successor Trustee is going to require a fair amount of record-keeping and bookkeeping but you can use your attorney and accountant to help you keep everything in order. If you would like advice and assistance in performing your duties as the trustee, please contact Shawna Murray Law at (949) 416-3575.