Trust administration is the informal process of transferring one’s assets upon death, according to the instructions in the decedent’s Trust. Specifically, the Trust appoints a “Successor Trustee” who is authorized (without court) to handle the complete administration of the estate upon death. The Successor Trustee legally “steps into the shoes” of the decedent, meaning they can do anything the decedent could have done if they were alive, with the exception that the Successor Trustee must follow the decedent’s instructions set forth in the Trust document.
The First Step
The first step in a Trust Administration is simply identifying all the assets of the decedent, and obtaining values for each asset as of the decedent’s date of death. For real estate, it’s generally a good idea to hire a Real Estate Agent or Appraiser to appraise the property. Next, the Successor Trustee must identify all the debts and taxes of the estate. Then, the Successor Trustee pays the debts and expenses of the estate from those assets, and distributes the balance to the beneficiaries listed in the Trust document.
Trust Administration vs. Probate Administration
The major difference between Trust Administration and Probate Administration, is that Trust Administration is a private and informal process, whereas Probate Administration is a public and formal process with the court. Further, unlike Probate Administration, there are no probate fees involved in administering a Trust, nor does the estate need to hire an attorney to administer a Trust. Finally, the transfer of one’s assets to one’s beneficiaries can take weeks under a Trust, rather than years in a Probate Administration.
Even though the procedure for administering an estate does not require an attorney, a Successor Trustee may wish to hire an attorney to review the Trust document and ensure proper compliance with the terms and conditions. Further, a Trustee may want to hire an attorney to handle certain aspects of the estate, especially where real estate is involved, as deed work must be prepared and recorded, property tax exclusion forms must be timely filed, and other tax considerations must be considered and handled correctly. Additionally, a Successor Trustee may want to hire an attorney where there is potential for conflicts between beneficiaries and family members. Finally, a Successor Trustee may simply want to hire an attorney to relieve them of the time commitment in handling the various steps in administering the trust estate.
Our firm routinely handles Trust Administration matters on behalf of our clients. Our clients are often unaware of the many relevant tax considerations involving every estate, and the importance in obtaining counsel to preserve these benefits. Unlike many Estate Planning firms, we bring an extensive background in tax law to our practice, enabling our clients to capitalize on many tax benefits frequently overlooked. Our clients are often surprised to learn how reasonable our fees are in the area of Trust Administration.
Steps Taken by Successor Trustee
Below provides some of the typical steps taken by the Successor Trustee when administering a Trust estate. Depending on the terms and conditions of the trust, there may be additional steps and/or responsibilities the Successor Trustee must follow.
1. Obtain Certified Death Certificates for the Decedent (20 recommended).
2. Notify Social Security of the Decedent’s death.
3. Notify the Employer (if any) of the Decedent’s death.
4. Apply/Obtain a Tax ID # for the Trust.
5. Prepare and File IRS Form 56 “Notice of Fiduciary Relationship.”
6. Prepare a “Trustee Certification of Trust”.
7. Prepare and Serve “Notification by Trustee” document to all heirs and beneficiaries. This legal notice is required by law to be served on certain individuals, and limits the amount of time (to 120 days) that one can challenge the terms of the Trust.
8. Obtain MediCal/Medicaid Clearance and FTB Clearance. These governmental notices and applications allow the Trustee to quickly ascertain, what, if any, outstanding liens exist, allowing the Trustee to resolve/settle before distribution is made to the beneficiaries.
9. Prepare and File Decedent’s Final Tax Returns (1040, 1041, 706).
10. Prepare and Record “Preliminary Change of Ownership” and “Affidavit of Change of Trustee” deeds for each parcel of real property owned by the Decedent. Additionally, timely preparation and recording of any “Applications for Re-Assessment Exclusion of Property Tax” with the County Assessor’s office, where applicable.
11. Make a list of the Decedent’s assets, and obtain date of death valuations for each asset. For real estate, it is recommended that the Trustee obtain an appraisal of the property for tax purposes, unless being sold immediately.
12. Make a list of the Decedent’s debts and expenses.
13. Pay Decedent’s debts and expenses.
14. Prepare Trust Accounting/Waiver of Accounting. Usually, the beneficiaries are entitled to complete detailed accounting, in legal form, of all transaction occurring after death and through final distribution to the beneficiaries. These accountings can also be waived by having each beneficiary sign a Waiver of Account document, which may be useful in avoiding the added cost to the estate for a professional to prepare the legal accounting.
15. Prepare Legal Releases. Once the Successor Trustee is ready to distribute to the beneficiaries, the Trustee should develop a future reserve amount to withhold for future/unknown expenses of the estate, as well as detailing each beneficiaries specific share amounts. Further, the Release allows the Successor Trustee to be released of all past and future obligations under the Trust. Also, the Release is helpful in absolving the Successor Trustee of personal responsibly for later discovered debts or obligations of the decedent and/or estate.
16. Distribute the balance to each of the beneficiaries as provided in the Trust document and Release.
Trust Administration Between Spouses
Certain types of Trusts between married couples require certain Trust Administration after the death of the first spouse (often referred to as the “Deceased Spouse”). These Trusts, considered marital formula trusts, are frequently referred to by many names, including, “Bypass Trusts”, “Credit Shelter Trusts,” “Exemption Trusts,” “GST Trusts,” “QTIP Trusts” “AB Trusts,” and “ABC Trusts.”
The purpose of these so called “Formula” or “Marital Trusts” is to take advantage of certain estate tax benefits, obtaining creditor protection for the Surviving Spouse, as well as protecting the wishes of the Deceased Spouse from being changed after their death.
Therefore, if a married couple has one of these types of Trusts, certain trust administration is required by law after the death of the first spouse. It is important for the Trustee, usually the Surviving Spouse, to contact an attorney to assist in administering the Trust, after the death of the Deceased Spouse. Specifically, the attorney will assist in preparing certain calculations, trust notifications, obtain tax identification numbers, and re-titling certain assets between the various trusts created by the marital formula trust.
Our firm regularly handles this type of Trust Administration on behalf of our clients. We are experts in identifying the relevant tax considerations invoked by these types of trusts, creditor protection, and in preserving the greatest number of benefits available. We bring an extensive background in tax law to our practice, enabling our client’s to capitalize on many tax benefits frequently overlooked. Our fees in handling this type of Trust Administration are reasonable