Many people probably think that once they have an estate plan in place their needs have been met. They are ready to move on, and feel secure in the knowledge that when they die their estate will be handled according to their wishes. To some extent this is true. Your wishes will be carried out and you will save your family time and money, but setting up the plan is only the beginning of the estate planning process. It is imperative that you review your plan regularly with your estate planning attorney. Buying or selling property, getting divorced, significant changes in income, and many other life-changing circumstances can impact your estate plan. In addition to regularly updating your plan while you are living, someone must be selected to manage the plan after you die. Trust administration is a vitally important and often misunderstood (or ignored) aspect of an estate plan that includes a trust. Trust administration allows for the
orderly settling of the decedent’s legal and financial affairs, including the disbursement of assets to the trust beneficiaries.
Like all important financial matters, your trust must be administered
by someone, in this case a trustee. In most cases, while you are alive you are the designated trustee. After you die, your successor trustee steps in to manage the administration of the trust. Specific duties and responsibilities are relegated to the person in this position. It is their sole responsibility to ensure that your wishes are carried out in a timely and legal manner. There are several essential steps to successful trust
- Identify assets of trust.
- Value assets of trust.
- Pay creditors of decedent and trust estate.
- Identify beneficiaries of trust estate.
- Distribute trust estate assets to beneficiaries and/or establish new trusts to hold and administer distributions to beneficiaries.
In addition to these responsibilities, the trustee must complete and file all necessary tax returns (income, estate, property, etc.). The trustee must also file all paperwork related to the transfer of property to the trust beneficiaries. There may also be other duties determined by individual state laws.
Trust administration can be complicated. While considerably less costly and time consuming than probate, it is still a legal process that requires diligence. The family member or close friend nominated as the successor trustee might feel overwhelmed by the responsibility. While there are books that explain the trust administration process, it is highly advisable to meet with the decedent’s attorney to learn more about the details of the estate and the administration process.
When looking for an estate planning attorney, consider the role he/she will play in the administration of your trust after your death. Does the attorney offer a free or discounted consultation with your successor trustee to discuss the documents and the administration process? What are the fees for doing the trust administration if the successor trustee feels he/she is not comfortable taking on this responsibility? There is no way to avoid trust administration. Be sure your attorney will assist your family through this process with the least cost and frustration.
Choosing a successor trustee also requires caution, as this person will undertake a tremendous responsibility. If you choose one of your beneficiaries to act as your successor trustee, there may be additional difficulties stemming from conflict between other beneficiaries and the trustee. The fears or suspicions of the other beneficiaries may be completely unfounded, but that doesn’t lessen their concerns. Also, it is important to choose someone who is fiscally responsible. Your son or daughter may have amassed wealth in their own business, but this does not necessarily mean they are qualified to manage someone else’s money. Take into account the size and complexity of your estate. If it is very large or particularly complicated, you may want to have the estate administered by an attorney or financial institution. When you establish your estate plan, discuss these issues with your attorney. Then, choose the person who will best serve your interests. This is not a decision to be taken lightly.
If the trust administration process is not completed, the trust may become invalid. Penalties or fees could be charged because of a reassessment of taxes or property values if the trust is not administered in a proper and timely manner. It is critical that the successor trustee understands their role and is informed of the location of all important documents and names of attorneys and financial professionals.
There is simply no way to avoid the administration of a trust. Property must be transferred, new trusts established, and assets disbursed. While having an estate plan that includes trusts relieves many of the problems inherent in using a simple will (or not planning at all), the reality is that there will still be a need for administration. You can simplify the administration process for your successor trustee by being prepared and well informed.