Knowing the basics of trust administration is important when you are named as a Trustee or a beneficiary of a Trust, and the trust creator's assets are titled in their trust, or if there are assets left outside of the trust. Not knowing or understanding your Trustee duties, or Beneficiary entitlements can lead to many challenges and liabilities, and can lead to the intended beneficiaries not getting their share in the trust for months, or, sometimes, years, after the death of the trust creator.
At the Law Offices of Maria N. Jonsson, PC, our estate planning lawyer in Los Angeles will listen carefully to each client's unique needs and will be sensitive to the emotions estate administration triggers. We will construct and administer trusts to safeguard your assets and benefit your loved ones. We represent individuals and families in various types of estate matters. We cover multiple areas of estate planning, including administration, trusts, wills, and the asset transfers that come with them.
Contact us at 424-383-8445 to schedule a Strategy Session-type Consultation to discuss your specific circumstances and challenges.
What Is Trust Administration?
When trusts are created, the terms for their administration are contained within them. The person who creates the trust is known as the trustor or settlor, and the person whom the trustor appoints to administer the trust is called the trustee. The trustee administers the trust by following the terms of the trust and acting in the best interest of the beneficiary (or beneficiaries). There are many legal duties by which the trustee must abide once he/she takes the Office of Trustee.
Often, trust administration begins when the trustor passes away or becomes incapacitated, and this largely depends on the trust and its terms and conditions.
There are certain steps and procedures that should be followed in order to properly administer a trust. While they may differ by jurisdiction and pursuant to the terms of each trust, some of the more common elements of the process are described below.
Know Your Trust
A trustee needs to be aware of everything there is to know about the trust they are tasked with administering. Reading the terms of the trust is a good place to start. A consultation with an Attorney is instrumental in having the terms of the trust explained in plain English. Oftentimes, the named Trustee is unaware of what is required of them, since most trusts are written in legal terms that need to be explained and put into the context of the specific family dynamic - as they may apply in some circumstances, and not apply at all. It is therefore essential duty and due diligence for a named Trustee to have the trust clearly explained to them, since they are legally responsible for correctly and timely administering its terms.
The trustee will also need to gather all documentation they can obtain that will help them to know exactly what property they will be managing. This can include:
- Bank statements
- Rental agreements
- Deeds to real property
- Life insurance policies
- Business entity documents (such as Bylaws or Operating Agreements for Corporations or LLCs)
- Certified copies of Death certificates
Working with an Attorney is instrumental in understanding what needs to be done with each of the assets that are both titled and not titled in the Trust.
Secure Trust Assets
After ascertaining what the trust assets are, the trustee will need to secure them. This may entail ensuring the assets are properly titled, as well as taking an inventory of personal property. The trustee will also need to determine what the assets are worth - this entails obtaining Date of Death bank balances, business or real property appraisals, and personal property appraisals.
Trustees are required to open a bank account in the name of the trust. This bank account can hold assets while the trust is administered. It will also provide a way for the trustee to show that they properly handled the assets of the trust. To do so, a Tax ID needs to be obtained from the IRS for the irrevocable trust - our Office can assist with correctly applying and obtaining such Tax ID.
Part of the trust administration process is notifying any of the beneficiaries who are named in the trust AS WELL AS any heirs at law of the deceased settlor - even if such heirs may not be mentioned in the Trust. There is a strict deadline and a statutory Notice that needs to be utilized/abided by in doing so. Beneficiaries need to know who the trustee is and the terms of the trust. This is an extremely important duty that an Attorney should assist with - because, the timeliness and correct format of this Notice sets forth a deadline to contest the trust. If not property given, such deadline never begins/ends, and the trust can be contested at any time.
Notify Creditors and Pay Debts
The trustee should try to determine to whom the trust may be indebted, and notify them of the trust and that they are the trustee. The trustee should obtain copies of any and all claims against the trust and investigate them to ensure they are a valid debt that needs to be paid. Then, they should take the proper steps to pay the debts, including any funeral or cremation expenses.
Distribute Trust Assets
After the trust property has been accounted for and all debts have been paid, in most instances (depending upon the terms of the trust) at this time the trustee begins to distribute the assets of the trust to its named beneficiaries. Before that happens, the beneficiaries must be provided with an accounting of the trust. If they agree with how the trust was administered, they will need to sign off on the accounting, approving the acts of the Trustee and absolving the Trustee of liability. Then, the terms of the actual trust will dictate how the trustee administers the assets. There may be some room for discretion given to the trustee, or the trustee may not have any discretion. It all depends on the way the trustor set up the trust - the Trustee needs to fully understand when and how they are permitted to distribute trust property to avoid personal liability in doing so correctly and timely.
Because the trustee has quite a lot of power, it is important to choose a trustee whom you can trust. Consider these factors when choosing a trustee:
- Time. It will require a lot of the trustee's time to administer the trust. A trustee is tasked with many different responsibilities specific to the trust, like filing personal and trust income tax returns, selling real estate, maintaining property and records, maintaining insurance, and finding and notifying creditors and beneficiaries, among other things.
- Skills. Is the trustee equipped with the right skills or expertise? Mistakes and mismanagement can happen when the trustee does not quite or fully understand what to do and how to carry out their responsibilities. The Trustee is permitted to hire Agents to assist - such as Attorneys, Accountants, Realtors, etc., but the Trustee is not permitted to delegate the Trustee duties to anyone else.
- Cost. The Trustee is entitled to compensation for the time and effort in administering a trust (trustee fees). You need to know what those fees are and how they will impact the trust. With that said, the cost of administering a trust is a small fraction of the cost of Probating the same assets.
Common Problems with Trust Administration in California
Unfortunately, problems frequently occur in trust administration. Some of the more common issues are described below..
Beneficiary Death or Incapacity
Beneficiaries may have passed away or become incapacitated since the trust was created. The trustee needs to consult with an Attorney to find out what they are to do - either per the trust terms and under applicable law - when named beneficiaries have died or are incapacitated.
When trust terms are not kept current, it is possible that some of the provisions of the trust will become irrelevant, or create a logistical obstacle in administering these terms, since circumstances may have significantly changed between the time the trust was created and the time it needs to be administered - which could be decades. When this happens, the trustee may need to seek court instruction on how to best proceed. Attorney advice is invaluable to find out alternatives to court intervention.
Beneficiaries may not agree with some of the decisions made by the trustee, or with the provisions of the Trust and its amendments. This is especially true when the trustee has discretion over the distribution of assets and a beneficiary disagrees with how the trustee uses that discretion. A Trustee needs to consult with an Attorney in an effort to avoid litigation, or if they need to defend the Trust if litigation ensues.
With all these problems, delays occur. Delays are costly. It is best to avoid these complications by making sure your trust is drafted properly and in compliance with the law, as well as by reviewing your trust periodically (every 5 years or so) to ensure the trust terms correspond to the changing circumstances and family dynamic.
Contact an Estate Planning Attorney in Los Angeles Today
At the Law Offices of Maria N. Jonsson, PC, our estate planning lawyer based in Los Angeles helps Trust Creators understand what will work best for them, benefit them, and benefit their loved ones. We make sure the documents that make up your estate plan are solid, well-supported, and in compliance. We also guide and assist named Trustees in navigating and timely administering the terms of the Trust they are put in charge of.
Contact us today by calling us at 424-383-8445 to schedule a Strategy Session-type Consultation.
There is a nominal consultation fee for a 45-min to an Hour long in-depth review and analysis of the terms of the trust, the family dynamic and applicable law to determine the precise steps a Trustee must take to ensure they stay in compliance with their legal duties and avoid personal liability.