Trust Administration is a process most families must undergo after the death of a parent to administer the trust estate and distribute the assets. If you are currently the named Successor Trustee of a Trust or have been named to be the Successor Trustee in the future, here is what you need to know:
- Trust Administration (TA) is a Process. TA has three parts: (1) Noticing, (2) Marshalling of Assets, and (3) Distribution of Assets.
- Noticing is the Step One in TA. Noticing requires legal notice to the beneficiaries and legal heirs in accordance with Probate Code Section 16061.7 within 60 days of the date of death. Until notice is given and the time has expired, the beneficiaries and legal heirs can bring an action to contest the terms of the trust. It is important that this notice is properly served and time has expired prior to any distribution of assets. If a beneficiary contests the terms of the trust, the Successor Trustee may use trust monies to defend the trust instrument.
- Marshaling of Assets is Step Two. The Trustee’s job is to marshal or gather together all of the trust assets into new account(s) with a new Tax Payer Identification Number. If you are a Successor Trustee, you must keep thorough records either through QuickBooks (or similar software) or you should hire a bookkeeper. As a Successor Trustee, you have a fiduciary duty to the beneficiaries, and that duty includes the duty to account for all monies in the estate. As the Successor Trustee, you must be able to account for every dollar.
- Distribution of Assets is Step Three. After the noticing period has expired, assuming there have been no objections and the assets have been marshaled together, then the Trustee is in a position to make distributions. Assets should NEVER be distributed without a written agreement signed by all beneficiaries agreeing to the terms of the distribution and approving all expenses incurred to date. The cost for an attorney to prepare this agreement is peanuts in comparison to the cost of litigation after there is a dispute among beneficiaries.
- Premature Distribution of Assets. Truth be told, soon after the death of a loved one, everyone is eager to receive their inheritance. Oftentimes, a crisis suddenly “appears” and a beneficiary starts demanding money. Succumbing to the pressure, the Successor Trustee tries to be the good guy and distributes the assets before realizing there are more expenses. Successor Trustees should NOT distribute any assets until they have a complete understanding of the trust administration and all expenses. When in doubt, the Successor Trustee should hold back a sufficient reserve for final expenses.
Trust Administration is a process. There is no magic wand that allows the distribution of assets without following the process. Failure to properly administer a trust opens the Successor Trustee up to tremendous personal liability. If you are in doubt as to whether you or your Successor Trustee is doing something correctly, seek legal counsel.