What is Involved in Trust Administration
An estate plan allows one to transfer their assets smoothly and quickly to beneficiaries after they pass away. Furthermore, one of the most common documents to include in an estate plan is a trust document that allows someone to place their assets into the care of a third party who will distribute these assets to the person’s family, friends, or favorite charity.
Once the funder of the trust passes away, the trustee must administrate the trust. Thus, to ensure that you understand the responsibilities associated with being a trustee, you must learn the basics of trust administration. Below is a general overview of trust administration and the responsibilities most trustees have to take on.
Understanding Trust Administration
When you are appointed as the trustee or successor trustee to a trust, you will administrate the trust after the person who creates the account dies. Every trust has a list of beneficiaries and ways in which the person who created the trust would like to have the assets within the account distributed. However, to ensure that there is no confusion, the trustee should talk to the person who creates the trust prior to their death. This allows the trustee to understand any nuances of the person’s wishes when it comes to how the trust will be managed after the creator of the trust dies.
There are many steps involved in trust administration. However, some of the most common responsibilities include transferring property titles and paying debts and taxes of the deceased.
Below is a list of important trust administration terms and the corresponding definitions.
Important Trust Terms
A grantor—also commonly referred to as a trustor or settler—is the person who creates or establishes a trust. Furthermore, the grantor has the legal authority to transfer property or assets into the trust.
A trustee is a person or entity that holds, manages, and eventually distributes property or assets for the benefit of a third party. Because the trustee oversees and manages the assets within a trust, to be able to serve as a trustee in the United States, a person must be at least eighteen years old and not be experiencing any forms of incapacity.
A beneficiary can be any person or entity that the grantor of the trust wishes to receive a portion of their property after they pass away. Furthermore, a trust can have as many beneficiaries as desired and give a different portion of assets to each beneficiary.
Property refers to the assets in the trust. While this can include real property such as a house, it can also mean cash, jewelry, artwork, securities, and automobiles. Depending on the type of trust, the property may be put into the trust when the trust is created or after the grantor passes away.
If a trust is revocable, the grantor may alter the terms of the trust as many times as they desire. These revisions can include the number of beneficiaries and trustees or the number and type of assets in the trust.
If a trust is irrevocable, it cannot be modified or revoked in any way after it is initially established.
Taxes are an important part of trusts as each type of trust has different tax requirements. Certain trusts must obtain a federal identification number and file a tax return every year. However, other trusts can use the grantor’s tax identification number.
Understanding each of these terms is important no matter what type of trust you establish.
Trust Administration Basics
There are many different types of trusts. However, the most common trusts include living trusts, testamentary trusts, irrevocable life insurance trusts, charitable remainder trusts, qualified domestic trusts, generation-skipping trusts, spendthrift trusts, special needs trusts, asset protection trusts, and Totten trusts.
In general, assets transferred into any of these trusts will avoid probate and judicial oversight and instead pass over to beneficiaries according to the terms of the trust. Thus, a trustee’s responsibility is to oversee the assets while they are in the trust and then distribute these assets to the beneficiaries of the trust after the grantor of the trust passes away.
Responsibilities of the Trustee during Trust Administration
The responsibilities of a trustee largely depend on the type of trust and actual terms of the trust. However, below is a list of the most common trustee responsibilities.
Manage the Assets in the Trust
When dealing with the trust, the trustee should create a list that states all of the assets owned by the trust. Furthermore, this list should include every type of assets such as physical property, investment or other financial accounts, and any other asset the grantor places in the account.
Managing these assets could include tasks such as seeking appraisals, obtaining titles, asset identification, reasonably investing assets, asset identifications, and paying off debts. The reason for this is that before you distribute the assets to the beneficiaries, you must ensure that you have gathered up all the assets within the trust and make sure to secure all property titles.
Keep Legal Documents and Records Safe
Keeping and safeguarding legal documents and records is one of the most important things that a trustee does. This entails keeping all of the estate planning and any other documents in one place.
One important note is that you should match all of the legal documents with their assets to ensure that nothing is missing when you initially take over the account. This allows you to check for any missing documents or assets that should be included in the trust.
Protect Assets and Property
Similar to securing legal documents, a trustee must also protect and manage all assets within the trust. This allows you to make sure no assets are lost, stolen, or destroyed. Furthermore, during the process of trust administration, the trustee must reasonably and prudently invest any assets that the trust owns. This means that the trustee must not invest in anything overly risky, not let real property become derelict, or let other investments sit idle. Thus, proper trust investment means that the trustee will reasonably invest assets or rent and maintain real property during the time it takes for the trust to be settled.
Send Out a Mandatory Notice to All Beneficiaries
An extremely important task that the trustee partakes in is notifying all the beneficiaries of the existence of the trust. Notifying beneficiaries is done through a specific legal form. Furthermore, the trustee must mail this form to any potential beneficiaries. Once the trustee mails this notice, the beneficiaries have 120 days to contest the trust.
Pay Debts and Expenses of the Trust
Another task that the trustee does is paying the expenses of the trust and any debts the grantor has. Furthermore, the trustee must do this before distributing any assets to the beneficiaries.
The trustee should also notify any potential creditors who may have a claim to assets within the trust. This is simply a form stating that the trust administration process began. The reason for this is that after the trustee notifies creditors, the creditor claim period begins. After this period is over, the trust does not have to pay any creditors.
File and Pay Taxes
One of the most difficult tasks a trustee must deal with is to file and pay the trust’s taxes. This is one of the few responsibilities that the trustee should definitely seek professional help. After filing the trust’s taxes, you must pay these taxes quickly so you can start to distribute assets.
Communicate with Beneficiaries
Not only does a trustee have to notify beneficiaries of the trust’s existence, however, the trustee must also communicate with the beneficiaries throughout the trust administration process. This includes letting the beneficiaries know the state of debts and assets within the estate and answer any questions that the beneficiaries may have.
Distribute Trust Income and Property to Beneficiaries
After settling debts, notifying beneficiaries, and completing and paying taxes, the trustee can begin distributing the property and income of the trust to the beneficiaries. After distributing this property and assets, your job as the trustee is essentially complete.
Trust and estate laws are complex. This is so no matter the type of trust you decide to establish. As such, it is extremely important to have legal representation that can help you correctly set up your trust. The Antonoplos & Associates trust and estate lawyers have over 20 years of experience helping clients in DC, Maryland, and Virginia set up living trusts, testamentary trusts, irrevocable life insurance trusts, charitable remainder trusts, qualified domestic trusts, spendthrift trusts, special needs trusts, asset protection trusts, and Totten trusts. With this knowledge and experience, we can help with any legal issues that occur from setting up your trust.
Furthermore, Peter Antonoplos, founder and managing partner of Antonoplos & Associates has an LLM in Taxation from Georgetown University Law Center. With this knowledge, Peter can help you decide what is the best type of trust for you and your family. Additionally, he can maximize the cost savings you receive from setting up a trust in DC, Maryland, and Virginia.
Contact our DC Law Office for More Information
Finally, for more information regarding what is involved in trust administration, contact us at 202-803-5676. You can also directly schedule a consultation with one of our skilled attorneys. Additionally, for general information regarding trust and estate law, check out our blog.