In many ways, trust administration is similar to probate administration. One of the main differences is that administering a trust generally occurs outside the scope of court supervision. Like the personal representative in a probate case, the trustee is responsible for gathering and managing trust assets and carrying out the terms of the trust. This includes keeping the beneficiaries informed and making distributions as required.
Many of the trustee's obligations will be specific to the terms of the trust, which is why one of the first steps in trust administration is a thorough review and analysis of the trust document. Other requirements are imposed by the probate code or other laws.
Tasks often required of the trustee during a trust administration include the following:
- Giving notice to beneficiaries and heirs (generally within 60 days of the death of the settlor)
- Collecting the assets and having them inventoried and appraised
- If necessary, splitting the trust into separate trusts and allocating the assets accordingly
- Obtaining a federal tax identification number for the trust (or one for each new trust created)
- Paying the debts of the person who died
- Filing a final income tax return for the decedent and the trust, as well as an estate tax return if necessary
- Managing trust assets, including investing funds or selling property as needed
- Preparing an accounting of the trust administration for the beneficiaries
- Distributing the assets according to the terms of the trust, including properly transferring assets as required
- Responding to disputes
This is a summary of trust duties. As trustee, you may have more or less to do, depending on the situation. As trust administration can be overwhelming and complicated, you may decide to seek legal counsel to help with the process.
The trustee is in a fiduciary relationship (one of trust and confidence) with the beneficiaries of the trust. As such, he or she is held to a high standard of care. Some of the trustee's primary duties to keep in mind are:
- Duty to administer the trust according to its terms
- Duty of loyalty to the beneficiaries
- Duty of impartiality between beneficiaries
- Duty to avoid conflicts of interest between the interests of the trust and the interests of the trustee
- Duty to take control of trust property and preserve it for the beneficiaries
- Duty to make prudent investments and ensure the trust property is productive
- Duty to keep trust property separate from other non-trust property
- Duty to keep beneficiaries informed regarding relevant trust information
- Duty to keep records and account to the beneficiaries regarding financial transactions of the trust
If the trustee fails to meet this standard, the beneficiaries can sue the trustee for a breach of his or her fiduciary duty. Remedies available in court include compelling the trustee to take action, denying compensation to the trustee, and having the trustee removed. The beneficiaries may also sue the trustee for damages for any harm caused by the trustee's action or inaction.
Another similarity to probate is the potential for disputes. Beneficiaries will often contest the terms or validity of the trust. Someone may have been cut out, or a long lost child returns out of nowhere to try to claim a share. Or perhaps the decedent decided to leave everything to his caregiver right before he died. Whatever the cause of the dispute, because money and property are involved, it can turn into a protracted court battle.
Once the beneficiary is notified of the trust administration, he or she generally has 120 days to contest the trust in court. For the trustee, this usually means it is important to get the notice out to the beneficiaries as soon as possible. For the beneficiaries, it means you have a limited window in which to contest the trust, and therefore you should request a copy of the trust terms and review them early.
Depending on how the trust was set up, its administration can be very complex and ultimately take a long time. For the trustee, it's important to follow the terms of the trust and comply with probate rules and your fiduciary responsibilities. For the beneficiary, make sure you understand the terms of the trust, keep in touch with the trustee, and do your part to help ensure a smooth process.
Helix Law Firm can help with trust administration
At Helix Law Firm, we can take the burden of trust administration off your shoulders. We can help make sure the rules are followed, keep up with deadlines, and communicate with beneficiaries on your behalf. If you are a beneficiary, we can help make sure your interests are protected.
If you're interested in learning more about how Helix can help, please call us at (619) 567-4447 to schedule a free consultation.