What is Trust Administration?
A revocable trust is created when an individual (known as the settlor) creates a legal document that puts the care of his/her assets in the possession of another person. The person who is assigned care of trust assets is known as the trustee. The trustee is almost always the same person that created the trust. A revocable trust allows the settlor/trustee to liquidate its assets at any time. When the settlor dies, the revocable trust becomes irrevocable.
Trust Administration consists of “housekeeping” paperwork required after the settlor/trustee passes away. Administering a typical revocable living trust upon death can typically be done with the professional help of a legal document assistant.
Upon the settlor’s death, the trustee is responsible for distributing trust assets to the beneficiaries. Since the settlor and the trustee are typically the same person, upon the settlor/trustee’s death the successor trustee will take over the administration of the trust. The trust document details the trustee’s duties. This involves the trustee (or successor trustee) taking inventory of trust assets. The trustee is also responsible for creating an accounting for the income and expenses of the estate. Lastly, the trustee’s goal is to distribute the assets to beneficiaries according to the terms of the trust.
During trust administration, the trustee is required to safeguard the trust assets and pay all required taxes. Trust administration begins once the settlor passes away. The trustee must comply with state and federal laws in distributing trusts assets to beneficiaries. It should be noted, the complexity of the trust administration will depend on the type of assets held in the trust, their total value, and the tax liabilities the trust may be subject to.
The Trust Administration Process
There are several steps to properly administer a trust after the death of the settlor. First, the trustee is required to tell the trust beneficiaries and the decedent’s heirs that the trust has become irrevocable upon the settlor’s death. Heirs and beneficiaries have 120 days to contest the terms of the trust.
Secondly, the trustee has to find the decedent’s assets. This includes assets held in and outside of the trust. Certain assets may need to be appraised prior to distribution. If a bequest was made to a beneficiary, he/she must receive his/her appraised value after trust assets and debts are paid. Third, the trustee has to transfer all assets that contain a title into his/her name as successor trustee of the trust. This allows the trustee to later transfer the assets to the designated trust’s beneficiaries.
Next, the trustee must contact the IRS to get a tax identification number. This is required if it is necessary to pay taxes on the trust’s behalf. California and federal tax returns should be filed for the decedent’s last year of life. If the trust generates income, the trustee needs to file fiduciary income tax returns as well. Furthermore, the trustee should keep a detailed record of all income, expenses and estate transactions. Lastly, the trustee is responsible for distributing the trust assets to the designated beneficiaries. Sometimes the Trustee might have to continue to act as trustee of subtrusts to manage monetary gifts to minor children until the children reach a certain age.
Contact A People’s Choice for more information about trust administration in California. We provide basic trust administration services after the death of the settlor. Trust administration is important. Completing trust administration correctly will keep trust assets out of probate court or exposed to extensive tax liabilities.