What is Trust Administration?Trust administration is the process of managing and distributing trust assets. Trust assets are those assets that are titled in the name of the trust. For example when you see an asset titled like “David Rose, trustee of the Rose Trust dated May 5, 2020” - you have yourself a trust asset.
If an asset is described any other way it is NOT a trust asset. If the same asset is titled just “David Rose” it does not come under the ambit of the trust instrument. It can come as a shock to some trustees or beneficiaries that an asset is not a trust asset because the outcome of that asset may not be consistent with what you think the decedent wanted.
For example, should the family home be titled as “David Rose and Moira Rose, as joint tenants”, after David dies, the home is transferred as a matter of law to Moira… even if the trust instrument provides that the trust assets should be split between David’s children. This can get even more complex if David and Moira die at the same time. Or, if David lists the home as a trust asset but never signs or records a trust transfer deed.
As an offshoot - this is why you should consult with an estate planning attorney when you draft your trust.
Assets can include real property, personal property such as jewelry and other personal belongings, bank accounts, and investment accounts.
The trustee is responsible for managing the assets within the trust, including investing the assets, paying any bills or debts owed by the trust, and lastly - distributing assets to beneficiaries.
Responsibilities of a TrusteeThe trustee has a lot of responsibilities. This is why I always tell my trustee clients that they are not obligated to serve as trustee. Let me make this clear - you can say no! Please know that it really is a lot of work. In fact, it so much work that there are professionals whose sole profession is to act as trustee.
The Role of the Probate CourtA revocable living trust does not go through probate, which can save time and money for the beneficiaries. However, the probate court still plays a role in the trust administration process. If the trustee fails to properly manage the trust, a beneficiary can petition the court to remove the trustee or take other legal action to protect their interests.
Here are the 5 Steps that a trustee must take. These are general guideposts. Every case is different.
Step 1: Notifying the Beneficiaries and Taking Inventory Of the Assets (DOD to 3 months)
After the decedent dies, the very first thing a trustee must do is contact the heirs beneficiaries to let the heirs and trust beneficiaries know that the trust is now irrevocable, that you are now the trustee. There is very specific language that must be used letting the beneficiaries and heirs know that they have x number of days to bring an action to contest the trust.
You’ll note that I am not addressing this letter to just the named beneficiaries of the trust. A trustee must also send this letter all heirs at law - including anyone who may not be mentioned in the trust. This is because 1) the law requires it; and 2) it shortens the time limit for any heir to contest the trust from years to months.
The trustee must create an inventory of all the assets held in the trust. This includes identifying and valuing all assets, such as bank accounts, investments, real estate, and personal property. Personal property is often overlooked BUT if you have reason to believe that grandma’s jewelry or art collection is worth over $500, it really should be appraised.
The trustee should of course also identify any debts or bills owed by the trust.
For any real property, or personal property worth over $500, the property should be appraised.
Step 2: Pay Bills and Debts (3-6 months)
The trustee must pay any bills or debts owed by the decedent. This includes expenses related to the administration of the trust, such as legal fees and accounting fees. The trustee should also pay any outstanding debts owed.
Step 3: Re-Appraise and File Tax Returns (6-9 months)
The trustee is responsible for filing any required tax returns for the trust. This includes income tax returns and estate tax returns, if applicable. The trustee should work with an accountant or tax professional to ensure that all tax obligations are met. If the trustee is also the executor, then they are also responsible for filing the last personal income tax return.
Property should also be re-appraised at 6 to 9 months post-DOD.
Step 4: Fiduciary Accounting ( NLT 1 year)
The trustee must maintain accurate records of all transactions for the trust. This includes keeping track of all income, expenses, gains, losses, and distributions. The trustee must prepare a fiduciary accounting report, which is a detailed report of all financial transactions within the trust to present to the beneficiaries. The purpose of the accounting is to disclose all activity of the trust and seek approval of all of those transactions. If the beneficiaries informally approve it, court is not necessary; but, should they not approve it, then a court order is necessary.
Step 5: Distribute Assets to Beneficiaries and Distribute The Cash Reserve
Once all bills and debts have been paid and tax returns have been filed, the trustee can distribute assets. The trustee must ensure that all distributions are made in accordance with the trust document and any applicable laws.
The trustee should also ensure that a cash reserve is set aside. Thus, not all assets should be distributed. The trustee should set aside enough money to pay for any outstanding tax liability that could arise up to three years and beyond after the filing of a return. The trustee should also set aside enough money to pay for tax filing preparation and filing, and legal fees.
The cash reserve should really sit for about 12-18 months. After that period, the trustee can safely distribute the reserve to the beneficiaries.
Trust administration can be a complex process, but with the right guidance, it can be navigated smoothly. Hiring an experienced attorney can help ensure that the trustee fulfills their responsibilities, does not end up with any personal liability, or give beneficiaries, the IRS, or any other creditors any reason to take legal action against them or the trust…. and that the beneficiaries receive their rightful share of the assets.
By understanding the trustee's responsibilities, the role of the probate court, and the distribution process, a trustee can work though the administration smoothly and ensure that they can walk away without regret or trepidation.
If you have any questions or need assistance with trust administration please contract me. I’m in Los Angeles but handle probate actions throughout the state. You can contact my office at 818-248-2183, or book an appointment online at LawyerCMA.com.
Probate is the process by which a court oversees the distribution of a deceased person's assets. Whether a probate petition needs to be filed will depend upon the value of the deceased person’s estate and whether they had a trust.
If the deceased person had a good, funded trust, probate is not going to be necessary; however, if the estate value is above the statutory limit of 166,250, then an action must be filed. Value does not mean net value. It means gross value.
If the value is under the threshold limit, probate may not be needed at all, and if it is, then a shorter proceeding may be available. You should consult with an attorney to help you determine the best course of action.
Clients always ask - how long will this take? And how much will it cost me?
The process takes around 12-18 months. And, the costs will include any filing fees, publication fees, and appraisal fees. In addition, there are executor and attorneys’ fees which are set by statute and not paid until the end of the case. By way of example, for a million dollar estate (and remember the value is based on the fair market gross value NOT the net value), the executor and attorney split around $46,000 in fees.
Filing and Petitioning the Court and The Hearing (Steps 1 and 2)
The first step in the probate process is to file a petition with the appropriate court. This is typically done in the county where the deceased person lived. The petition will ask the court to appoint an executor or personal representative who will be responsible for managing the estate.
The court will also schedule a hearing to review the petition and any objections that may be raised. Hopefully, you will walk away from that hearing with letters which I consider to be the gate openers. With letters in hand, you take responsibility for the estate administration, and are free to contact banks, and other account holders. Prior to those letters, you cannot do much in the way of investigating the deceased person’s assets and liabilities because account custodians will not share information with you. In addition the letters allow you to take control of the assets and eventually distribute and disperse them.
It's important to note that there are different types of probate proceedings, depending on the value and complexity of the estate. Small estates may be eligible for a simplified probate process, which can be faster and less expensive. A probate attorney can help you determine the best course of action for your specific situation.
Inventory and Appraisal, Creditor Notification and Procedure (Steps 3-4)
Once the executor or personal representative has been appointed, they will be responsible for gathering and inventorying all of the deceased person's assets. This includes real estate, bank accounts, investments, and personal property. The assets will need to be appraised by a professional to determine their fair market value. This information will be used to determine the value of the estate and to prepare tax returns.
Some assets may be exempt from the probate process, such as property held in joint tenancy, life insurance policies with designated beneficiaries, and retirement accounts with designated beneficiaries. These assets will pass directly to the designated beneficiaries outside of probate.
At this time, the executor needs to give notice to any known creditors that there is a probate action to administer the deceased person’s assets. If any creditors step forward, and makes a claim, the personal representative will accept, reject, or partially accept/reject the claim within 30 days of receiving the creditor claim. If a claim is rejected, the creditor has an additional 90 days to file a lawsuit against the estate to recover the alleged claim.
Paying Debts and Distributing Assets (Step 5-6)
After all of the assets have been identified and valued, the executor or personal representative will need to pay any debts owed by the deceased person, including taxes, funeral expenses, and outstanding bills. Once all debts have been paid, the remaining assets can be distributed to the heirs named in the will or to the deceased person's heirs-at-law if there is no will.
Probate can be a complex and time-consuming process, but it is necessary to ensure that a deceased person's assets are distributed according to their wishes. By understanding the probate steps involved, you can be better prepared to navigate the process and ensure that your loved one's estate is handled properly.
If you have any questions or need assistance with the probate process, please contract me. Again, I’m in Los Angeles but handle probate actions throughout the state. You can contact my office at 818-248-2183, or book an appointment online at LawyerCMA.com.
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