Are you the successor trustee of a recently deceased parent’s trust? Your relatives are asking for their inheritances. Well aware that you must distribute the trust assets, you also know that doing so involves more than passing out some heirlooms and writing some checks. So, you ask yourself, “now what?”
Although hardly exhaustive and no substitute for a discussion with a qualified estate planning attorney this article provides a brief guide to administering a relatively simple trust. Moreover, this article should not be construed as legal advice. It is not meant to apply to any specific situation, and constitutes a brief summary of a complicated subject. Please consult with a qualified estate planning attorney or other professional for questions concerning a particular situation.
Essentially, trust administration is a three step process that requires the successor trustee to: (1) identify trust assets; (2) pay the decedent’s debts and taxes; and (3) distribute trust assets. Not surprisingly, trust administration requires a great deal of organization and responsibility. Throughout the process of trust administration the successor trustee must comply with numerous deadlines and procedural requirements that may be overwhelming for even the most organized and diligent trustee. Therefore, the successor trustee should seriously consider seeking guidance from a trusted estate planning attorney.
For example, one important procedures requires notifying certain interested parties of the settlor’s death. The notice, which is required by the California Probate Code, protects the successor trustee and the named beneficiaries from lingering legal disputes. Because proper notice requires several technical and timing requirements, failing to make the notice - or making it wrong - can expose the trustee to unwelcome liability. A qualified estate planning attorney can help prepare and serve the notice to ensure it complies with the law. This notice requirement is just one of many strict procedural requirements a successor trustee must meet.
In addition to ensuring compliance with a variety of deadlines and notice requirements, the first step in the trust administration process involves identifying and gathering trust assets. Certain assets owned by the decedent must be appraised to determine whether estate taxes may be owed, and to determine the basis for assets that will be transferred to beneficiaries. If the trust owns real property, the successor trustee should take steps to transfer title so the property can be managed, sold, or distributed to trust beneficiaries. The successor trustee should then identify other trust assets, including bank accounts, retirement or investment accounts, and insurance proceeds to ensure those assets can be distributed according to the trust instructions.
Another step in the trust administration process involves paying debts and taxes owed by the decedent. The successor trustee is obligated to pay the settlor’s debts, including any income or estate taxes that may be owed. This begins with determining the nature and amount of any outstanding liabilities and the creditors who might be entitled to receive payment from the decedent’s estate. With the appraisals conducted during the initial phase, the trustee and his or her professional advisors will determine whether income or estate tax returns should be filed.
After all of the assets have been collected, the debts paid, and necessary tax returns filed, the successor trustee will begin the process of distributing the remaining trust assets. As with all other aspects of trust administration, the terms of the trust document will dictate how the trust assets are to be distributed among the trust beneficiaries.
Although the distribution process may seem straightforward, the successor trustee should keep careful records of everything distributed, to whom assets were distributed, and the timing of all distributions. Moreover, this process could require the trustee to prepare any number of transfer documents, from assignment agreements to letters instructing financial institutions to transfer accounts.
In summary, trust administration requires careful consideration and attention to many timing and procedural requirements. In addition to drafting estate planning documents such as wills and trusts, The Mascaro Law Firm helps guide successor trustees through the process of trust administration. If you or your clients need assistance with trust administration, please call The Mascaro Law Firm at 714-544-0700.