 |
Trust
Administration
What Is Trust Administration?
Trust administration is the process by which a
trust is processed following the death of the settlor, or creator of the trust, to comply with
the terms of the trust. Administration must
occur when there is a death of a settlor of a
trust, even if a trust has two settlors.
Why Is Any Administration Required With a
Trust?
A common misconception is that by having a
living trust, no administration is required. It
is true that, absent problems described below,
the administration of a trust will typically
avoid a court probate proceeding. However, that
does not mean that an administration is not
required. An important difference between a
trust administration and a probate proceeding
are the costs. Trust administration is usually
1-2% of the gross estate, however, a probate
proceeding is usually 4-10% of the gross estate!
Moreover, a trust avoids court involvement, in
most cases. Probate is a mandatory court process
if no trust exists.
Is Court Action Required?
Trusts are generally drafted and designed to
avoid the necessity of having a court administer
the trust after the settlor's death.
Occasionally, however, there are instances where
a trust is ambiguous, needs some type of
clarification or modification, or where the
trustee desires court approval of actions taken
in the administration. In those situations, a
trust administration matter can find its way to
court. The advisability of seeking court
approval is best determined after reviewing the
particular circumstances of the trust involved
with a professional well versed in trust
administration matters.
What Steps Are Required in a Trust
Administration?
The role of the trustee of the trust is to
marshal and inventory all assets of the trust.
This process
necessarily
involves
 determining
whether there were assets outside the trust
which were supposed to
be inside the trust. Once
the inventory is complete, valuations for all
assets must be obtained. Valuations are used to
determine whether federal and California estate
tax returns will need to be filed. Tax issues
are varied and complex, and are best addressed
after reviewing the specific situation by a
knowledgeable attorney.
All final debts and expenses of the settlor
(decedent) will need to be paid. For this
purpose, the trustee must coordinate with the
settlor's probate estate (if there is one) for
payment of these expenses. Formal notice may
also be given to creditors if circumstances
warrant. The trustee should consult with an
attorney to determine if notice is recommended.
The trustee must communicate with the
beneficiaries of the trust and with the
settlor's heirs at law regarding the trust.
California law requires that the beneficiaries
and heirs receive notice regarding the existence
of the trust, and all beneficiaries are entitled
to be kept apprized of the administration
process. In addition, the trustee must provide
annual accountings to the beneficiaries of the
financial activity of the trust, unless the
trust provides otherwise.
The trustee is also required to distribute the
assets of the trust according to the terms of
the trust. This may involve transferring the
assets outright to the named beneficiaries, or
may involve holding the assets for some time,
even for a beneficiary's entire lifetime, for
that beneficiary's use. The distribution
provisions of a trust are as varied as the
settlors who create them. Should the
distribution provisions be ambiguous or unclear
to the trustee who is administering the trust,
it is always advisable for that trustee to
consult with a knowledgeable trust
administration attorney to guide him/her through
the particular terms of the trust in question.
What If the Trust Was Not Funded?
A trust should be funded by the settlor of the
trust when the trust is created through the
transfer of title of the settlor's assets to the
trust. In cases where the settlor neglected to
transfer title of his/her assets or where title
to an asset was inadvertently not transferred to
the trust, the trustee, following the settlor's
death, will need to arrange for transfer of the
assets to the trust if possible. There are
different methods, depending on the
circumstances, to obtain the transfer of those
assets to the trust, including declarations and
court orders.
Surviving Spouse/Settlors Do Not Have to
Administer Their Trust, Right?
A myth propagated by high pressure trust mills
is that a surviving
spouse will
not
have any
administration following the death of
his/her
spouse/co-settlor.
The truth is that most joint
trusts split into sub-trusts on the death of the
first spouse and must be funded with assets of
the trust. The division into sub-trusts is a
very complex process which takes into account
estate tax, income tax, valuation, and personal
considerations. To obtain the best funding
result, a surviving settlor should consult with
his/her attorney, CPA, and financial advisor.
How Long Does Trust Administration Take?
 It varies. For a single settlor
trust with only one beneficiary, the
administration process can be
completed in a few months. For a more complex
trust, or for trusts with litigious
beneficiaries, the administration process can
take as long as, or longer than, the probate
proceeding process. However, the trust
administration process can be expedited by a
knowledgeable attorney, who can guide the
trustee on the steps to take to conclude the
administration as quickly as possible.
|
FAQs
