If you are appointed as Trustee of a trust, it is your responsibility to make sure that the trust assets are managed and distributed pursuant to the terms of the trust. This is called Trust Administration. Note, no matter what type of trust, it is always a good idea to seek counsel of an estate planning attorney, who can help with the Trust Administration.
Living Trust Administration Basics
For most revocable living trusts, while the trust creator, or Settlor, is alive, the trustee is the same person as the Settlor. As such, there is no difference between the trust and the Settlor: they are alter-egos of each other. Thus, there is minimal, if any, formal Trust Administration needed. However, that all changes following the death of the Settlor.
Following the death of the Settlor, the trustee needs to perform, at a minimum, the following tasks:
- Gather essential documents.
- Lodge the Will with the county.
- Provide notice to beneficiaries.
- Identify and value assets.
- Identify debts.
- Invest the trust assets responsibly.
- Obtain titles.
- Timely file appropriate tax documents.
- Maintain proper trust accounting.
- Distribute trust assets, as necessary.
- Delegate trust duties, as necessary.
- Dissolve the trust, as necessary.
Here is a quick summary of the tasks.
Gather Essential Documents.
The Trustee needs to gather copies of the death certificate, certified copies of the death certificates from the county coroner’s office, and the trust document itself, along with any ancillary documents. The Trustee should familiarize themselves with the trust documents.
Lodge the Will with the County.
The Executor of the Will (who is usually the Trustee) needs to lodge or record the original will with the county that the Settlor lived in. The lodging of the will must be done within 30 days of the death of the Settlor.
Provide Notice to Beneficiaries.
California law requires that the notice of trust administration be given to heirs and beneficiaries. The notice requires specific language to be incorporated to ensure that the notice is legally sufficient. The law requires that the notice be sent within 60 days of death of the Settlor.
Identify and Value Assets.
The Trustee is legally responsible for the assets of the trust and must ensure that the assets are protected and preserved, so that none are lost, stolen, or depleted. If the Trustee fails to protect and preserve the assets, they can be held liable. As such, as soon as Settlor dies, the trust property should be identified and evaluated through professional appraisal.
If the Settlor had any debts or liabilities (including unpaid income taxes), they must be identified. The Trustee must pay valid claims made against the estate by creditors. Failure to do so may result in liability for the Trustee.
Invest the Trust Assets Responsibly.
The Trustee is a fiduciary to the beneficiaries of the trust. As such, all trust assets must be managed in a prudent and reasonable manner. Any real property, such as an apartment complex, must be rented or sold. Liquid assets, such as cash and stocks should be invested in diversified way to ensure reasonable returns with a relatively low risk.
The Trustee needs to obtain titles to trust assets that have been properly titled to the trust. Typically, an Affidavit of Death of Trustee is prepared and filed with the county where real property owned by the trust are located. A Preliminary Change of Ownership Report needs to be filed within 150 days of the death of the Settlor.
Timely File Appropriate Tax Documents.
The Trustee is required to file any necessary tax documents on time. Failure to do so could result in unnecessary tax liabilities for the trust or different valuations for trust assets. IRS Form 706 (federal estate tax return) must be filed within 9 months from the date of death of the Settlor. A 6-month extension may be requested by filing a form 4768 (during the 9 months following the death of the Settlor).
Further, assets values must be reported to the IRS and the beneficiaries within 30 days after filing Form 706 on IRS Form 8971.
Maintain Proper Trust Accounting.
Beneficiaries of a trust are entitled to have a complete accounting of all trust transactions. The California Probate Code lists the requirements for this accounting.
Distribute Trust Assets, As Necessary.
The Trustee must efficiently distribute trust assets, per the terms of the trust, and within state law. Some assets, depending on the terms of the trust, may stay in the trust for many years, with benefits (income, principal, etc.) being distributed or paid to the beneficiaries over time. For those assets, the Trustee’s responsibility is ongoing.
Delegate Trust Duties, As Necessary.
A Trustee is not required to be an expert in all of the duties laid out in the trust. The Trustee is permitted (unless specifically barred by the trust), to seek the advice of professionals, such as Certified Public Accounts, attorneys, investment advisors, and real estate agents, in helping with the Trust Administration. However, the Trustee will bear the ultimate responsibility of overseeing any of the delegates.
Dissolve The Trust, As Necessary.
Once all of the assets are distributed to the beneficiaries in accordance with the trust terms, there is no need for the trust to be in existence and should be dissolved.
The steps listed above are some of the main, but not all of the required duties of a Trustee during the Trust Administration. As you can see, each step requires the Trustee to be diligent and carefully understand their duties and responsibilities. Mistakes made by the Trustee can be both costly to the trust and its beneficiaries of the trust, as well as lead to liability for the Trustee. As such, a Trustee should seek guidance from experienced Trust and Estates attorneys to help guide the Trustee during the Trust Administration.