Many people create a Revocable Living Trust as part of their estate plan with the goal of making things easier for their loved ones. A properly structured trust can help avoid probate, provide greater privacy, manage assets, and ensure property is distributed according to the trust creator’s wishes.
However, creating a trust is only the first step. After the person who created the trust passes away, or in some cases becomes incapacitated, the trust must still be properly managed and administered. This process is known as trust administration.
Understanding what trust administration involves, when it is required, and what responsibilities fall on the Successor Trustee can help families navigate the process with greater confidence and avoid common mistakes.
If you have recently been named as a trustee, you can also learn more about Kelley Law Firm’s Trust Administration services.
What Is Trust Administration?
Trust administration is the process of managing, accounting for, and distributing assets held in a trust after the death or incapacity of the person who created the trust.
The person responsible for administering the trust is generally called the Successor Trustee. This individual steps into the role of Trustee after the original Trustee is no longer able to serve.
The Successor Trustee is responsible for following the instructions contained in the trust agreement and carrying out the wishes of the person who created the trust.
Although trust administration may help families avoid the traditional probate process, it still involves important legal, financial, tax, and administrative responsibilities.
When Is Trust Administration Needed?
Trust administration is generally needed when the person who created the trust passes away.
During their lifetime, many people who establish a Revocable Living Trust serve as their own Trustee and maintain control over the assets held in the trust. After their death, the person named as Successor Trustee takes over and begins administering the trust according to its terms.
Trust administration may also become necessary when the person who created the trust becomes incapacitated and the trust agreement provides for another person to take over management of the trust assets.
Because every trust and family situation is different, the specific steps required will depend on the language of the trust, the assets involved, applicable state law, and the circumstances surrounding the Trustee and beneficiaries.
What Are the Responsibilities of a Successor Trustee?
Serving as a Successor Trustee is a significant responsibility. A Trustee generally has a fiduciary duty to act in accordance with the trust and in the interests of the trust beneficiaries.
The exact responsibilities vary depending on the trust, but several tasks are common during the trust administration process.
Locating and Reviewing Trust Documents
One of the first steps is locating the trust agreement and carefully reviewing its terms.
The trust document provides instructions regarding how assets should be managed, when distributions should occur, and who is entitled to receive trust property.
The Trustee may also need to gather related records, including:
- Bank and investment account statements
- Property deeds
- Beneficiary information
- Insurance documents
- Business records
- Tax documents
- Other financial records associated with the trust
Understanding what the trust owns is essential before making decisions about payments or distributions.
Identifying and Valuing Trust Assets
The Successor Trustee must identify the assets owned by the trust and determine their value when appropriate.
Trust assets may include real estate, bank accounts, investment accounts, business interests, personal property, and other financial assets.
Accurate records are important because the Trustee may need to account for the property, manage it during administration, address tax considerations, and eventually distribute it according to the trust terms.
For trusts or estates with tax filing obligations, the IRS provides information about Form 1041, U.S. Income Tax Return for Estates and Trusts, which is used by fiduciaries in certain circumstances to report trust or estate income.
Communicating With Beneficiaries
A Successor Trustee may have responsibilities related to keeping beneficiaries reasonably informed about the administration of the trust.
Clear communication can help prevent misunderstandings and reduce the likelihood of disagreements.
Beneficiaries may have questions about:
- What assets are held in the trust
- When distributions may occur
- How assets are being managed
- Expenses being paid by the trust
- Decisions being made by the Trustee
Keeping organized records and communicating appropriately throughout the process can make trust administration considerably smoother.
Paying Expenses, Debts, and Taxes
Before distributing trust property, the Trustee may need to address expenses and financial obligations connected with the trust or the deceased individual’s affairs.
Depending on the circumstances, these expenses may include funeral costs, property maintenance expenses, professional fees, taxes, and other costs associated with managing and distributing trust assets.
Tax obligations can be particularly important. The IRS provides additional guidance for individuals responsible for a deceased person’s financial affairs through Publication 559, Survivors, Executors, and Administrators.
Because tax responsibilities vary depending on the trust, assets, and individual circumstances, Trustees may need assistance from legal, tax, or financial professionals.
Maintaining Accurate Trust Records
Trustees should maintain careful records throughout the administration process.
This may include documenting:
- Assets received or transferred
- Income earned by trust property
- Bills and expenses paid
- Professional fees
- Property sales
- Distributions to beneficiaries
- Communications involving significant trust decisions
Accurate records can help the Trustee demonstrate that the trust has been administered according to its terms and applicable legal requirements.
Distributing Assets to Beneficiaries
Once the necessary administrative responsibilities have been completed, the remaining trust assets can generally be distributed according to the instructions contained in the trust agreement.
Some trusts provide for relatively immediate distributions. Others require assets to remain in trust for a period of time or allow distributions only after certain conditions are met.
For example, a trust may provide that assets remain in trust for younger beneficiaries or that distributions occur gradually rather than all at once.
This is one reason carefully reviewing the trust before distributing property is so important.
Common Mistakes During Trust Administration
Trust administration can become complicated, particularly when a Successor Trustee has never served in this role before.
Common mistakes include distributing property too quickly, failing to properly identify trust assets, ignoring beneficiary rights, failing to maintain accurate records, mixing trust funds with personal funds, overlooking tax or reporting obligations, and failing to follow the instructions contained in the trust agreement.
Because Trustees have fiduciary responsibilities, mistakes during trust administration can potentially create disputes or expose the Trustee to liability.
Receiving professional guidance early in the process can help Trustees understand their responsibilities before important decisions are made.
Trust Administration vs. Probate
Trust administration and probate are related estate matters, but they are not the same process.
Probate generally involves a court-supervised process for administering certain assets held in a deceased individual’s name. Trust administration involves assets that were properly transferred into a trust and are managed according to the terms of the trust agreement.
A properly funded Revocable Living Trust may help certain assets avoid probate, but not every asset automatically becomes part of a trust simply because the trust was created.
This is why proper trust creation, funding, and ongoing estate planning are important.
You can explore additional services related to estate planning, trusts, probate, wills, and powers of attorney on Kelley Law Firm’s Practice Areas page.
Do You Need an Attorney for Trust Administration?
There is no requirement that every Successor Trustee hire an attorney. However, trust administration can involve complicated legal and financial issues, particularly when significant assets, real estate, business interests, blended families, beneficiary disagreements, tax concerns, or unclear trust provisions are involved.
An experienced trust administration attorney can help the Trustee understand the trust agreement, identify important responsibilities, communicate with beneficiaries, coordinate distributions, and avoid unnecessary problems during the administration process.
Professional guidance can be especially valuable when a Trustee is unsure what should happen next or wants to make sure their responsibilities are being handled properly.
Let Kelley Law Firm Help With Trust Administration
Becoming a Successor Trustee can feel overwhelming, particularly when you are also dealing with the loss of a family member or loved one. You do not have to navigate the process alone.
Kelley Law Firm assists individuals and families throughout Kansas and Missouri with trust administration, estate planning, trusts, and probate matters.
Whether you recently became a Successor Trustee, have questions about administering an existing trust, or want to create an estate plan that makes the process easier for your loved ones, Kelley Law Firm can provide guidance throughout the process.
Contact Kelley Law Firm today to schedule a consultation and get clear guidance on your next steps.