Naming a trustee is not a decision you can take lightly. Trust administration entails plenty of responsibilities. It is not a job you can leave to anyone.
In this article, we will hone in on the different tasks involved in trust administration. First, you will see why managing a trust can be like a full-time job. Later in this article, we will also discuss identifying the person or party in charge of your trust.
Defining Trust Administration
Before we get further into the complexities of trust administration, let’s first define what it is all about. Trust administration is a catch-all term that covers all the tasks of managing a trust. We are talking about the tasks that you must perform while the trustee is still alive and the obligations that you must complete after their passing.
On the one hand, trust administration is fairly straightforward. The trust document outlines what the grantor wants for their estate and beneficiaries. On the other hand, whoever is administering the trust needs to follow the instructions provided.
On the other hand, the individual tasks involved in trust administration can be difficult to manage simultaneously. As a result, trustees may need to dip their toes into different fields to complete the tasks left to them. As a result, many trustees hire other professionals to make their tasks easier to manage.
The parties in charge of trust administration owe a fiduciary duty to the grantors and their estates. That means they must act in the best interests of the estates they manage. Accordingly, they must remove their personal interests from the equation while making decisions that affect the estate. Instead, they must focus on taking steps to enrich the estate and its beneficiaries.
Any trustee who fails to fulfill their fiduciary duty while conducting trust administration is subject to potential penalties. According to the Legal Information Institute, trustees that breach their fiduciary duty are usually ordered to compensate the beneficiaries of the estates they manage.
What Tasks Are Involved in Trust Administration?
Whether you have been named a trustee or looking for someone to take on that role, you should take the time to understand everything that it entails. Let’s go through some of the essential tasks involved in trust administration in this section of the article.
Create an Inventory of the Assets in the Trust
A big part of a trustee’s job involves keeping tabs on the assets included in the grantor’s estate. However, to do that properly, they must first create an inventory of the assets.
You should create the inventory depending on when the trustee assumes control of the trust. For example, this may occur while the grantor is still alive, or the trustee may create that inventory when the grantor passes away. In either case, the trustee must note the value of each asset on the day they take control so they have records to provide if the beneficiaries pose questions later.
It is in the best interests of the trustee to maintain documentation outlining the value of the assets in the estate. Should any questions about their value emerge in the future, you can pull out those documents to prove that none of the assets have been misappropriated.
Creating an inventory for a trust requires reaching out to various people. For example, the trustee may have to speak with banks, real estate brokers, accountants, and any other professionals who can provide the latest and most accurate information pertaining to the value of assets in the estate.
Trustees may also be required to submit certain requirements to obtain the necessary information. As a trustee, you must assemble the inventory as soon as possible. Otherwise, the beneficiaries may complain about how long the distribution of assets is taking.
Manage the Assets in the Trust
A trustee cannot work wonders using the assets in an estate. However, a trustee should also avoid sitting on the assets housed inside the trust. Instead, they must actively manage the assets to generate increased value for their beneficiaries.
For example, a trustee may consider investing some money in the trust. The trustee does not have to identify the best-performing stocks while investing in the trust’s assets. Instead, they can look for low-risk investments guaranteed to yield positive returns.
In some cases, trustees may also make difficult decisions regarding real estate properties in the estate. They may see the value of a particular property dropping and conclude that selling is the right move. A trustee may have the final call regarding what to do with the asset in question. Still, they should run their decision by the beneficiaries before deciding.
Note that asset management may be something the trustee must handle for a long time. For example, if the beneficiaries are still young and trust indicates that they should only receive their share when they are adults, the trustee may need to manage the assets for several years.
Update Titles for Assets
You must transfer ownership of a real estate property to a trust to keep it protected. Now that the property is set to be distributed to its rightful owner, its documentation must reflect that.
This is where the trustee comes in. The trustee must now prepare the real estate properties for distribution by updating their titles.
How long the transfer of ownership takes will depend largely on the documentation available. If the grantor neglects to gather some key documents, the trustee must obtain them before they can proceed to distribution.
Pay the Applicable Taxes
Taxation can be a source of confusion for grantors and trustees. For example, you might have assumed that the trust you are managing does not need to pay taxes until one of the grantor’s old lawyers tells you to start getting payments in order.
Non-grantor trusts are the ones subject to taxation. The structure of a non-grantor trust features the trustee and its beneficiaries. After creating this type of trust, the grantor is usually no longer involved with it.
Trustees in charge of non-grantor trusts may still need to pay income taxes. But, technically, it is not the trustee or the grantor that pays the taxes. Instead, that deduction is taken directly from the non-grantor trust.
By the way, you may still pay property taxes if real estate properties are housed in the trust. Once again, you will use the assets in the trust to pay its tax obligations.
Settle the Debts of the Estate
Taxes are not the only payments you will make while managing a trust. Over the years, the grantor of the trust may have amassed quite a bit of debt.
They may still owe money to mortgage lenders, credit card providers, and hospitals. The estate may also owe payments to plaintiffs from lawsuits filed earlier. Finally, do not forget about the payments owed to the funeral home and whichever service providers handled the final remains of the grantor.
All those debts belong to the estate. Before distributing the assets to the beneficiaries, you must pay off those debts. Failing to pay those debts can expose you to legal liability. In addition, now that the grantor has passed away, the creditors may come after you because you were the trustee who failed to manage the estate correctly.
Save yourself from that potential problem by prioritizing the estate’s debts.
Put the Grantor’s Will through Probate
The trust is the mechanism housing the assets of the grantor’s estate. To complement the trust, the grantor may author a will that clearly states how they want the assets in the trust to go to their beneficiaries.
Of course, a trustee cannot open up the grantor’s will and immediately start distributing assets based on what is in writing. They have to go through the proper legal process first. In New York State, that means putting the will through probate.
Probate is the process that the Surrogate’s Court conducts to determine the legitimacy of a will. It is important to note here that probate can take a long time. The process can last for a year in some cases.
The trustee must get to work on putting the will through probate as soon as possible so the beneficiaries will not need to wait too long for their shares.
Notify the Beneficiaries of the Estate
The beneficiaries of an estate and the grantor may not all reside in one household. Because of that, the trustee should send out notice of the grantor’s passing to all beneficiaries set to receive assets from the trust.
Unlike many other states, New York State does not have strict rules for notifying beneficiaries. Even so, a trustee must handle this task.
It would be best to send notice letters about the grantor’s death within two months of their passing. That way, beneficiaries living out of state or even out of the country can receive assets from the estate in a timely manner.
Aside from sending the letters to the beneficiaries, you must also supply copies of the trust document. Supplying copies of the trust document is necessary because some beneficiaries may want to challenge the trust. You should only distribute the assets in the trust once all challenges become cleared.
Provide a Formal Accounting of the Trust’s Assets
Before releasing the assets to the estate’s beneficiaries, the trustee may prepare a formal accounting of the trust’s contents. Trustees are not always obligated to provide a formal accounting of the trust, but it is still worth doing as a show of good faith to the beneficiaries.
Presenting a full accounting of how the trust’s assets were managed should not be that difficult as long as you track them diligently. Put together all the relevant details in some documents so the beneficiaries can better understand what you did.
Distribute the Assets to the Beneficiaries
Your final responsibility as a trustee is to distribute the assets in the trust to their rightful owners. Of course, asset distribution is not that simple.
In all likelihood, you are not only writing checks for the beneficiaries to cash. There may also be real estate properties and other valuables in the trust that must be transferred properly to their new owners.
The distribution may become even more complicated if beneficiaries are not of legal age yet. While you distribute the assets to the beneficiaries of legal age, you may need to continue managing the assets of the younger heirs. That means you’ll have to continue performing your many duties until they are old enough to claim their shares.
Who Should Handle Trust Administration of Your Estate?
Selecting the trustee for your estate is a critical part of estate planning. You cannot choose simple anyone to take on that important role.
When choosing a trustee, remember the many responsibilities you are giving them. Serving as a trustee may not be a full-time job, but it may cut heavily into that person’s free time. As much as possible, you want to give this role to someone capable and willing to devote their time to it.
It would also be best to name someone who has considerable experience dealing with professionals like lawyers, accountants, and banks. You want someone already familiar with those professionals so they can manage the trust more effectively.
Finally, you want someone you know will have the best interests of your beneficiaries at heart. Even if laws dictate how trustees should behave, choosing trustworthy people for that job would still be ideal.
So, who should you pick as your trustee?
If you are looking for someone who can handle everything this role entails, giving it to an attorney is a good idea. Naming your attorney as your trustee makes a lot of sense because they can quickly handle any legal matters pertaining to your trust. They will not need to coordinate with others before addressing legal issues.
Are you looking for an attorney who can handle the tasks and responsibilities involved in trust administration? If so, we at the Alber Law Group would like to offer our services. Reach out to us today and leave your trust in the hands of a legal expert!