Trust Administration

While one of the main goals in comprehensive estate planning is to avoid probate, establishing a revocable living trust does not eliminate the need to formally administer a decedent's estate. A living trust usually makes administration easier, but it does not do away with administration altogether. For example, assets still have to be collected and managed pending distribution to the beneficiaries, appraisals of assets have to be arranged, debts and taxes have to be paid, tax returns must be filed (living trusts do not avoid estate taxes, as some people have been led to believe), and legal documents must be prepared in connection with the distribution of the trust property to the beneficiaries. These activities are very similar to a probate, but the major difference is that, with a living trust, everything is handled privately, without court supervision, which usually makes for a faster, less expensive administration.

Time Frame.

One of the first questions that comes up in the administration of a trust is, “When will the trust property be distributed?” After the settlor's death, the revocable trust continues as a management and distribution vehicle that exists only as long as is necessary to identify and collect trust assets, pay debts and taxes, and distribute the trust assets to the beneficiaries (or in further trust, depending on the terms of the trust). It is the trustee's responsibility to collect and manage the trust assets, appraise trust property, pay all taxes and expenses relating to the administration of the trust, and distribute the trust property according to the settlor's instructions.

This process can take anywhere from a several weeks to several years, depending on a variety of factors, including:

  • the size of the estate
  • the nature of the assets
  • the number of creditors or the existence of contested claims
  • the complexity of the tax issues involved
  • whether assets must to be sold in order to pay taxes or creditors, or to make distributions

Court Involvement.

There is a popular misconception that a living trust avoids all possibility of court involvement after the settlor's death. This is true (in part) only if all of the settlor's assets were properly funded into the living trust at the time of the settlor's death. If not, and if assets held outside the trust exceed $150,000 in gross value, a probate will be required for those assets in order for the trustee to collect these assets and administer them as part of the trust estate.

 

Also, if a beneficiary of the trust believes that the trustee has acted improperly, the beneficiary may file a petition with the court to force the trustee to make a full report and accounting or to redress an alleged breach of trust.

Finally, sometimes in administering a trust there are questions about whether the trustee should or should not take certain actions (e.g., selling a business or real property). In these situations, it is usually advisable for the trustee to put the issue to the court and petition the court for instructions. The beneficiaries will be given notice of the court hearing and will be given a copy of the petition that describes the issues. The matter will then be addressed in open court and the beneficiaries will have an opportunity to appear and be heard. By obtaining an order from the court regarding the matter, the trustee may be able to cut off the beneficiary’s ability to later complain about the particular act. In this way, the involvement of the court protects the trustee when there is a fear that the trustee’s decision will be second-guessed by a beneficiary down the road.

The Attorney's Role.

As a Trusts & Estates firm, Forethought Law is often called upon to represent trustees and beneficiaries in trust administrations. This usually entails helping collect and value assets, pay debts and taxes, and prepare the necessary transfer documents in connection with the eventual distribution of trust property to the appropriate beneficiaries. We  also assist in preparing any accountings and reports to be given to the beneficiaries. Additionally, if any court action is necessary, we represent the trustee or beneficiary throughout the process.

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