Creating a trust is one of the best ways to protect and preserve assets upon death. But a trust is not a self-sufficient document. Upon the death of the decedent (the grantor, or the person who created the trust), the trust must be administered according to its terms. Below we discuss some important elements of trust administration and what to expect when a decedent passes away.
What is a Trust?
A trust is established to provide protection for the decedent’s assets, to ensure those assets are distributed in accordance with the decedent’s wishes, and to save time and money by avoiding the probate court process. Physically, a trust is a document outlining all of these elements which a person signs in order for it to become effective. A trust also creates a kind of relationship known as a fiduciary relationship. In a trust fiduciary relationship, the decedent has given the trustee (who is often the grantor themself initially) the right to hold (not own) the property or assets within the trust for the benefit of the grantor and/or others.
What is Trust Administration?
Trust administration is the process by which a decedent’s estate is settled when they die (if the decedent created a trust during life). Trust administration requires time, attention, and knowledge of the process in order to be done correctly and in a timely manner with the court. The timeline of a trust administration will vary depending on the size and complexity of the estate. It will also vary depending on how responsive beneficiaries, attorneys, and trustees are to each other, as these people often need to communicate with each other regularly during the administration process.
Who is the “Successor Trustee?”
A trustee is the person named at the time the trust is created to be responsible for the trust assets. Typically, the person creating the trust names themself as the initial trustee so they retain all control over their assets while they are alive.
When the person who created the trust dies, they no longer serve as trustee. At this point, a successor trustee must be appointed. This is usually another person or financial institution named in the trust when it is created. A successor trustee steps into the shoes of the initial trustee to carry out the decedent’s wishes, manage trust assets accordingly, and ultimately administer the trust when all trust creators have passed (such as in the case of a married couple creating a trust). Depending on the parties named in the trust, the person administering the trust could be an initial trustee (if the trust creator named a third party initial trustee, for example), or a successor trustee stepping in.
General Trust Administration Steps
Trust administration is an important role which the trustee(s) must undertake to settle a decedent’s estate. Below are the general steps involved in completing the process. Trust administration involves legally required actions which are important to note.
Give Legal Notice as Required
The trustee is required by law to notify certain people when administering the trust in question. These people are the trust beneficiaries and legal heirs of the estate. The number of notifications required will vary depending on the number of named beneficiaries and legal heirs. This also requires that the trustee account for the family of the decedent, including children from prior relationships and family members who might initially be unknown. Trustees are also advised to notify creditors of the decedent or the decedent’s estate.
After the trustee has notified these individuals, each individual has a window of time in which they can contest the trust. Creditors of the decedent also have a limited opportunity to submit claims for repayment at this point.
Identify Trust Assets and Other Assets of the Estate
Trustees have fiduciary responsibilities to the decedent to effectively manage the trust assets in the best interest of the decedent and beneficiaries. It is crucial that the trustee have an accurate record of all assets held in the name of the trust. The trustee should also know which assets of the decedent are not held in the name of the trust, as these assets will also need to be distributed in some way according to the decedent’s estate plan.
Manage Trust Assets
Once the trustee has an accurate picture of the assets in the decedent’s estate, they should invest certain assets. The trust administration process can be lengthy, so it is important to use the trust assets wisely and in a productive manner. The trustee should aim to maximize returns and minimize risk where possible. Assets that are not productive during trust administration (such as real property with no tenants) should also be managed. Real property can be rented, sold, or otherwise managed according to the decedent’s wishes or limitations.
Have Assets Appraised, if Necessary
Certain assets will need to be appraised during the trust administration for tax and other purposes. This should be done as soon as possible during the administration.
Pay All Necessary Debts
If the decedent left any outstanding debts when they passed, those debts will need to be repaid in a timely manner. If a trustee fails to pay debts they should have paid on the decedent’s behalf, the trustee could incur personal liability for those debts. Although unpleasant, paying outstanding debts is a crucial step in the trust administration process.
Prepare the Trust Accounting
Another legally required job of the trustee is to prepare a trust accounting. The California Probate Code specifies a format which the trustee must follow to account for the financial status of the estate. This includes reports of any accounts, expenses, compensation for trustees and legal counsel, and other necessary records that help paint a picture of the estate’s financial health. Trustees may need to provide the sort of accounting more than once during their service as trustee.
Establish and Execute a Plan for Distribution
The trust document outlines how the decedent wanted their assets to be allocated, and it is the job of the trustee to enforce the terms of the trust. When following the decedent’s instructions, the trustee should also aim to minimize expenses as much as possible. At this point the trustee will need to regularly communicate with beneficiaries. The trustee must then distribute the assets according to the plan. This can include transferring title of certain assets, paying money from the decedent’s estate to named persons or entities, or other tasks to allocate the decedent’s property accordingly.
Can I Administer a Trust Without an Attorney?
Although legal counsel is not required for the trustee to administer a trust, it is not advisable to undertake this take for the first time alone. Trust administration requires many steps that must be meticulously followed to ensure legal compliance. These steps can become confusing depending on the complexity of the estate. It is also possible that legal disputes may arise during a trust administration, at which point it is advisable to have legal counsel.
What are the Costs Associated with Trust Administration?
Like most elements of trust administration, the costs and fees resulting from the process will also vary depending on the complexity of the estate and duration of administration. The Trustee will be responsible for paying fees including the following: attorney’s fees, trustee compensation (if any), court and filing fees, accounting fees, and appraisal and/or business valuation fees.
The attorneys at Weiner Law assist in trust administration processes with the goal of eliminating as many obligations for our clients as possible. We represent beneficiaries, trustees, and grantors during this challenging time. Call our law office or request a complimentary, no-obligation consultation to discuss how we can best serve you.