Trust administration is the process of ensuring that a trustee is properly carrying out the mandates of the trust and is doing so in compliance with applicable state law.
At the time a trust is established, a separate and distinct entity is created. The person creating the trust is called the Settlor (also known as the “Trustor” or “Grantor”). The person managing the trust assets is called the Trustee. And the person for whose benefit the assets are held in trust is called the Beneficiary. Oftentimes, a person may hold all three positions simultaneously.
Trust administration begins at the time the trust is created and funded. Upon a Settlor's death, a portion (or all, depending on the circumstances) of the revocable trust becomes irrevocable. Moreover, a power of attorney is no longer legally effective. The successor trustee is now in control of managing the trust estate and must report to the beneficiaries and distribute assets in a timely manner.
Specific trust administration tasks upon the Settlor(s) death may include:
- Reviewing the trust instrument and any other estate planning documents to identify time-sensitive issues and determine any relevant tax implications;
- Preparing a detailed inventory of all property owned by the Settlor;
- Obtaining date of death values of all property;
- Preparing a detailed list of all obligations, debts, and other liabilities;
- Recording affidavits of change of trustee for the real property; notifying the county assessor of change in ownership and filing documents to avoid property tax reassessment, if applicable;
- Preparing and filing of California and federal estate tax returns;
- Preparing and filing of income tax returns;
- Preparing and filing of one or more California and federal fiduciary income tax returns for the trust;
- Allocating assets to any subtrusts, if applicable, and appropriate funding of any subtrusts;
- Making trust distributions to beneficiaries, including distributions of income to a surviving spouse or an income beneficiary;
- Paying debts and trust expenses on a timely basis; and
- Preparing written reports to the beneficiaries, if requested to do so
Proper administration is crucial in achieving the Settlor's objectives. For instance, a failure to properly fund the trust during the Settlor's lifetime (i.e., re-title assets in the name of the trust) may lead to the invalidation of the trust. If the defect can be cured, additional work such as initiating a court proceeding will likely be required to bring the assets into the trust.
While trust administration is generally handled outside the court system, breach of a trustee's fiduciary duties can result in a court action being brought by a beneficiary. Moreover, a trustee who breaches his or her fiduciary duty may be held personally responsible for any present or future loss or injury to the beneficiaries. For these reasons, it may be prudent for a trustee to seek the guidance of an experienced and qualified attorney to avoid or mitigate any potential problems down the line.
In the event that a dispute arises, our focus is to resolve the issue informally through alternative dispute resolution methods such as mediation. The goal is to discuss the various issues with the interested parties and work towards achieving a mutually acceptable resolution. If mediation does not satisfactorily resolve the issue, we will then look to either associating with or referring you to experienced litigation counsel.