How does a trust work when someone close to you passes away, figuring out what happens next with their assets can be tough. If a trust is involved, this process, called trust administration, directs how assets get managed and distributed. Trust administration helps ensure things go according to plan, as your loved one intended.
What Exactly Happens in Trust Administration?
After the person who created the trust, called the grantor, passes away, the successor trustee steps in. This person, or sometimes a fiduciary, takes charge of making the trust's instructions happen.
One of their first big tasks is finding and alerting all the beneficiaries. These are the individuals or groups, like a favored charity, for example, set to receive something from the trust.
The Trustee's Main Jobs
The trustee‘s role goes way beyond just handing out assets. The core function of the trustee‘s fiduciary duties is detailed below.
They need to figure out what the trust actually owns, and pay off any debts. All of this is a major task and part of the overall administration process.
Think of the trustee as a project manager. There are bunch of steps and some might depend on finishing others first.
Making Sure Everything Is Accounted For
Part of trust administration means figuring out what belongs to the trust property. Then you have to add up its total worth. Use this helpful Asset Spreadsheet to list all the trust assets.
This often means getting professionals, like an appraiser, involved to assess how much certain assets are worth. Consider fine art, collector items, or valuable coins.
Following the Rules and Paying Bills
The trustee has to walk a careful line, following both the trust terms and the law. They must keep detailed records.
Debts need to be paid first, before the beneficiaries. Sometimes figuring out what's actually owed isn't very simple and involves the estate tax or filing income tax.
Giving Out Assets to Beneficiaries
Once all of the bills are paid and assets organized, distributing assets is one of the final steps in trust administration. But, how those assets get handed out is a significant process.
The trustee uses guidance in the trust documentation and how those instructions determine distributions. They follow methods laid out on how distributions should be handled.
Keeping Great Records
All through trust administration, the trustee is responsible for keeping accurate accounts. The trustee details transactions related to income, expenses, and the final distributions.
After assets held are fully accounted for, and debts are settled, the final step is to manage trust assets and to make sure every single beneficiary gets exactly what they are entitled to. So they've finished the administration phase, which legally releases them from duty.
Trust Administration Roles
There's the grantor, that's the person setting it all up. There's a trustee to handle stuff, and, finally, the beneficiaries receive something at the end.
The Trustee's Big Role
Think of the trustee as a conductor of a complicated process. They need to be fair to everyone, make solid decisions, and also do it all efficiently.
A trustee might be responsible for deciding what assets can best contribute to achieving goals, and part of overall asset management. But the core duty remains of holding assets for a third party.
Beneficiaries, Who Are They?
Anyone can be a beneficiary, you, and me, even a beloved group in the area. This person, or even business or organization, who inherits is known as a Beneficiary.
Trust administration really gives power to the trust creator’s original intent. Having named individuals and institutions avoids conflicts.
Who Sets It All Up? – Grantor
So the Grantor, or sometimes you see “Settlor” in trust documentation, starts the entire thing. The trust states what the Grantor’s wishes are.
Power of Attorney versus Trustees
Granting Power of Attorney versus the role of Trustee involves distinct purposes and responsibilities. Both involve some financial oversight.
A person designated under Power of Attorney oversees financial duties for you. Trustees, however, carry the main fiduciary oversight.
Facing Common Issues
Even with perfect planning, you still get surprises, because things in people's lives often times change. Managing trust assets relies on understanding your options and duties.
Beneficiaries are involved with trust administration, yet, this isn’t an equal sharing arrangement necessarily. Conflicts between families or beneficiaries aren’t rare. Trustees sometimes should focus on communications.
Conflicts occur with differing perspectives over what’s at stake. The best path forward sometimes involves going through steps to open conversations or negotiations between those impacted by distributions.
Beneficiaries should create a living trust of their own so that their assets can avoid probate court, and their family is protected.
Ways To Navigate Conflict
Improved Communication – Trustees should ensure conversations happen to reduce sources of possible mistrust and allow concerns to surface.
Formal Agreements – Written agreements provide beneficiaries with ways of being heard and also allow written recognition of each party's duties or claims.
In worse-case issues, mediation or going to court helps resolve matters. Finding ways forward can involve negotiations between beneficiaries.
What Happens if a Beneficiary is Incapacitated
There may be provisions put into trusts, known as “Special Needs Trusts” or other conditions in existing ones.
Following the Right Steps
Trust administration begins with many steps that might include gathering various important documents.
Consider all the following:
- Find the original trust document. Having this outlines, exactly, the key people or organizations.
- Alert and locate beneficiaries about the grantor’s passing. Also, communicate that you, or whoever is acting as Trustee, will soon clarify timelines of the assets.
- Locate various assets like brokerage accounts, deeds, and accounts to understand their location. These might include life insurance policies or other insurance policies.
- Pay final expenses, if not already taken care of such as outstanding debts or taxes, possibly needing to deal with federal tax regulations and tax returns.
- Work with relevant professionals for distributions according to how the original trust structured those.
- Maintain and complete thorough accounting for any reporting to beneficiaries, per instructions from the Grantor.
Having support from professional advisors who are familiar with trust administration services becomes vital at this time.
Frequently Asked Questions (FAQs) about Trust Administration
What is the difference between a revocable and irrevocable trust?
Revocable trusts can be changed or terminated by the grantor during their lifetime. While, irrevocable trusts generally cannot be altered after creation.
Choosing between the two depends on goals, the type of asset protection wanted, and tax considerations, highlighting a major point of trust planning. Both offer unique uses within a comprehensive estate plan.
Can a trustee also be a beneficiary?
Yes, a trustee can also be a beneficiary of the trust; however, some prefer having a professional trustee. This is a common practice.
However, potential conflicts of interest might exist. A trust administration trustee should be acting fairly and impartially for all those in the trust administration trust.
How are taxes handled in trust administration?
A trust administration trustee must address taxes during the trust administration process. It must be determined if the trust is liable for income or estate taxes, or if it will be the beneficiaries.
Proper handling includes filing tax returns. It must also involve paying any taxes owed from the trust before distributing assets. Seeking a professional helps to stay current on changes and meet all requirements as a trustee administering properly.
What does record-keeping involve for trust administration?
It is about detailed tracking of all financial transactions, communications, and decisions related to the trust and is a critical piece of trust administration. Accurate record-keeping provides transparency to any and all beneficiaries.
Being thorough with all of the many transactions protects the trustee against legal claims. Proper organization like this makes everything go smoothly when a trust continues.
Looking to create your living trust? Contact AmeriEstate for a trust review or a free living trust consultation. Since 1998, we have helped over 45,000 clients create their living trusts and have successfully handled thousands of trust administrations.