As valuable as a trust can be for any grantor’s estate planning efforts, this legal entity can be a source of confusion and disruption if it’s not properly managed. To complicate matters even more, trustees are often ill-equipped to administer their responsibilities on their own, since many people choose to appoint untrained laypersons to act as their trust administrators. If you’re a trustee charged with the administration of a grantor’s trust, it’s important to have as much information as you can on trust administration to ensure that you properly fulfill your role.
Probate is designed to create a “final accounting” upon death. It is the legal process of “proving up” a Will, or verifying that a Will is valid, takes place in one of two instances. First, if a person dies leaving behind a Will, or second, if the deceased has died intestate, that is, has not left behind a Will or estate plan of any type or the Will cannot be found.
Depending on the complexity of the estate and the thoroughness with which accounting has been carried out before death, probate can either be a relatively simple task or a daunting one. Be aware that no matter the situation, probate may be a lengthy process often taking months or possibly years to play out, and one which may take a considerable amount of an executor’s time.
To summarize the process, probate can be broken into six basic steps:
- Validation of the Will
- Appoint executor
- Inventory estate
- Pay claims against the estate
- Pay estate taxes
- Distribute remaining assets
Each of these steps involve legal documentation and validation, and more importantly, proper accounting each step of the way.
Probate begins and ends with the special Probate Court set up in each state to handle estate issues. (Sometimes known as the Orphan’s or Chancery Court in certain states.) All actions taken regarding the estate are accountable to this court, and must be noted and reported regularly. This court is staffed by special judges qualified to oversee estate resolution issues.
To summarize the process, trust administration can be broken into five basic steps:
- Inventory assets
- Determine estate tax
- Division of trust assets
- File the Federal and State tax forms
- Distributions to beneficiaries
While having a living trust can significantly reduce costs compared to probate, there is still a considerable amount of work to be done in properly administering even a simple living trust. The services of an attorney are required, and that person or firm should be compensated fairly for their services. It is important to remember that the fees allowed for trust administration are usually much lower than those for probate, and there is generally less work involved, as there is less involvement of the courts and state bureaucracy.
The answer depends upon the language of the trust document. Certain trusts include “pick and choose” language that allows trustees to selectively place assets into the “B” trust.
If you are a relative of the deceased, this is simple in most states. To transfer the title of vehicles owned by the deceased, simply take the death certificate to the DMV, and perform the transfer, paying whatever fees they require. If not a relative, bringing along the will and or any trust documents indicating your status should be sufficient.
Social Security will continue to send out benefit checks until they are notified of an individual’s death. The executor/spouse/trustee should contact the local Social Security Administration office and notify them of the death, or if a benefit check is received, send it back with a letter notifying them. This is important. If checks continue to be deposited, the recipient can incur liability later when Social Security learns of the recipient’s death.
As a trustee, you have a duty to ensure that your decisions are made with the best interests of the trust and its beneficiaries in mind. That means that you need to avoid even the appearance of impropriety, and should be diligent about caring for the assets in your charge. The trustee role is an awesome responsibility that requires a serious commitment to protecting the value of trust assets so that they can be used for the benefit of the trust beneficiaries. A trust administration attorney can help to ensure that you meet these expectations.
One of the first things that you will need to take care of is the notification that must be provided to all the trust’s beneficiaries. Each of those heirs is entitled to receive a formal notice, and the delivery of that notice provides the heir with an opportunity to contest the trust. Most trusts are contested based on claims that the grantor lacked the mental capacity to make the trust or that there was undue influence. As you might expect, these claims are not easy to prove.
By law, beneficiaries have six years from the date of the grantor’s death to initiate a trust contest. However, beneficiaries who delay this contest always run the risk that trust assets will be fully distributed before their claim is initiated. As the trustee, it will fall to you to deal with these contests. You have a responsibility to work to settle any conflicts related to the trust or any other aspect of the estate. It’s always advisable to hire a trust attorney whenever you suspect that a legal challenge might be imminent.
You’ll also need to ensure that all trust property is correctly titled after the decedent’s death. In cases where the grantor was not serving as his own trustee, this titling will likely already have been addressed. If you were designated as successor trustee, however, you’ll need to take steps to get the trust’s assets titled in your name as trustee so that you can properly manage and distribute that property. This must be done for all real property like real estate and vehicles as well as other assets like stock broker accounts and bank accounts.
As with probated wills, the decedent’s debts must be paid. That responsibility falls to the trustee. You should provide notice to known creditors, and take steps to provide a general notice to any unknown creditors who might wish to levy claims against the estate. You’ll also need to evaluate these claims to determine their validity. All valid debts must be paid using trust assets. Depending upon the nature of the assets held by the trust, you may need to liquidate property to raise the funds needed to settle those debts.
Taxes are another issue that must be addressed. It’s important to recognize that trusts have their own tax concerns, including estate tax liability when applicable. You’ll need to ensure that any income tax returns are prepared and filed as necessary, and ascertain whether the trust owes estate taxes. It’s generally a good idea to retain a tax professional to help sort out these tax issues and to help with any return preparations.
As the trustee, your decision-making process may be questioned by confused beneficiaries or disgruntled heirs. To protect your interests and those of the trust, it is always important to maintain a proper system for recording your activities and transactions. You should have an accounting system that documents every activity that you engage in as you work to settle the decedent’s affairs. Include records of every deposit and withdrawal from the trust, every investment decision you’ve made, and any payments that you’ve made using trust funds.
The terms of the trust will dictate how assets are to be distributed to beneficiaries and may provide other important instructions about their management. Be diligent about following those instructions, so that you can avoid controversy and conflict. As a rule, distributions should be made only after debts and taxes have been assessed and settled, to ensure that those obligations are properly met. Some trusts may provide you with greater discretion about distributions. If the trust terms are unclear or you simply need more advice about how to proceed with distributions, be sure to contact a trust lawyer for assistance.