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, 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).
Often, trust administration begins when the trustor passes away, but this is dependent on the trust and its terms and conditions.
How Is a Trust Administered in California?
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. The trustee will also need to gather all documentation they can obtain that will help them to know exactly what they are managing. This can include:
- Bank statements
- Rental agreements
- Life insurance policy
- Certified copies of the trustor's death certificate
There may be other documents the trustee needs to understand the trust. The trust itself should clarify what these are.
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 the assets. The trustee will also need to determine what the assets are worth.
Trust assets come in a variety of forms, including life insurance proceeds, real property, investment accounts, and personal property (such as jewelry).
Trustees are often required to open a bank account in the name of the trust with a Federal Tax ID Number. 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.
Part of the trust administration process is notifying any of the beneficiaries who are named in the trust with a Notification of Trustee pursuant to Probate Code Section 16061.7. This Notification apprises beneficiaries who the trustee is, the jurisdiction and other important information regarding the trust and its administration. Jurisdictions vary, and it may be that there is a timeline that must be adhered to for notifying beneficiaries. An estate planning lawyer in your area can advise you on this and other state-specific issues.
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
At this point, it is time for the trustee to distribute the assets of the trust. Generally speaking, 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. Then, the terms of the actual trust will dictate how the trustee administers the assets.
Choosing a Trustee to Administer the Trust in California
Because the trustee has quite a lot of power, it is important to choose a trustee whom you can trust. That said, a trustee cannot refuse to carry out the terms of the trust and cannot act in bad faith. 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 income and estate tax returns, selling real estate, maintaining property and records, 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.
- Cost. Some trustees, like corporate trustees, charge fees. You need to know what those fees are and how they will impact the trust. But also, a family member appointed as trustee may not charge a fee but may have to hire an attorney, and that will cost them. These and more are things to consider. The burden could be a lot.
Many times people choose close friends or family members as trustees, but you may want to consider someone with the time and expertise even if that will cost more than a family member. In the end, it may save you and your loved ones time and money.
Common Problems with Trust Administration in California
Unfortunately, problems frequently occur in trust administration. Some of the more common issues are described below. The fundamental issue creating these problems, however, is typically poor drafting of the trust.
Beneficiary Death or Incapacity
Beneficiaries may have passed away or become incapacitated since the trust was created. The trustee needs to ensure all beneficiaries are still living and able to receive their distribution. If not, the trustee will likely need advice from the court on how to proceed. But also, it is a good idea to put into place contingent beneficiaries so that if a beneficiary dies, there is another beneficiary in place to benefit from the trust.
When trusts are not reviewed and their terms are not kept current, it is possible that some of the language used will become irrelevant. When this happens, the trustee will typically seek court direction on the best way to proceed.
Beneficiaries may not agree with some of the decisions made by the trustee. 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. Another example is when a beneficiary does not agree with the actual terms of the trust and contests it. Litigation could ensue.
With all these problems, delays occur. Delays are costly. It is best to avoid these problems by making sure your trust is drafted properly and in compliance with the law.
Contact an Estate Planning Attorney in Orange County Today
At Duvel Law, APC., our estate planning lawyer based in Orange County handles all types of estate plans and helps clients 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. Contact us today by filling out the online form or calling us at (714) 542-5100 to schedule a Free Consultation.