Open Road
We have been faithfully staying at or near home, and are “Chopping at the bit” for a little breathing room. Clearer driving is in store, we hope. What better time than Memorial Day?
However, while the States ease some restrictions, it will hardly be an open road for some time. While we phase into a more familiar day-to-day life, I have the feeling that is will be a bumpy ride, with some hairpin stops and starts.
Planning helps to prepare for coping with the great uncertainties we face. Protecting wealth for your loved ones and yourself is equally important. Through estate planning, business planning, and asset protection, our firm will help you protect everything you love — family, friends, and favorite charities.
For those who have put a trust in place, how will that work out when needed? What is the job of being a trustee and how can I prepare to do that well?
Trust Administration Matters
A common misconception is that if you have a trust, there is no work to do when someone dies.
We have helped thousands of families use trusts after a client has become disabled or has died. For most cases at death, if a trust is well-drafted and filled with assets, there is very little or no work to do with the probate court. However, there is still usually a home to clean out and sell, contents of that home to be disposed of, and at least two income tax returns to file. There are often other assets to be collected, like retirement plans and annuities that carry with them potential income tax pitfalls.
What do you need to know before taking over a trust? We have a webinar called “What to Tell Your Executor” on the Events page of the website that can be a good starting point. If you have never served as a fiduciary before, it might feel somewhat daunting to be appointed to serve as the trustee of a trust.
Hopefully, the person establishing the trust notified you in advance of your appointment. If they did, then you should have the contact information of the person’s attorney and an overview of what they want you to do. Will the assets to be managed be distributed outright, or will oversight and management be ongoing after they die? It is far better to know the responsibilities you will be taking on and politely refuse the appointment now than it is to bail out when the appointment takes effect later. But first, what are some of those responsibilities?
Trustee 101
A trustee may be a person or a financial institution, or both. The trust holds legal title to the property for the benefit of another and the trustee manages them according to the terms of the trust. The trust document will identify who the trustee is. If the person who set up the trust was the initial trustee (as in a revocable living trust), then you might be named as successor trustee to administer the trust, when the original trustee becomes incapacitated or dies. For example, John might set up a living trust and put all his assets into the trust. He is the initial trustee. John handles all the administrative matters of the trust during his lifetime. When John dies, the person and/or institution appointed as his successor trustee assumes complete control.
If a trust appoints you as the successor trustee, you do not have to do all the work yourself. Handling the assets of another can monopolize your time, so many people hire and supervise specific professionals to do some or all the work. For example, you may have an accountant take care of the taxes. Alternatively, the trust may authorize you to appoint an institutional trustee to handle all the “heavy lifting” responsibilities, with you overseeing that trustee.
Trust Administration
The specific actions that a trustee must take require the utmost integrity and care, including as examples the following responsibilities:
- Read the trust agreement. Make sure you understand what the trust directs you to do. Get professional advice, if you have questions. You need to know who the beneficiaries are, what they are supposed to receive, and when you must make distributions to the beneficiaries.
- Marshal the assets. In other words, you need to find, secure, and value all trust assets as soon as possible. You may be required to file a claim to collect certain assets, like the proceeds of life insurance policies. You may need to hire a professional appraiser to value some assets, like the contents of the home, jewelry, and vehicles.
- When conducting business for the trust, always sign as “Trustee”, assuring that you are acting and an agent, without individual responsibility for liabilities.
- Identify and pay all final expenses, personal and trust taxes, and legitimate debts of the decedent. Some bills must be paid promptly. You also must provide proper notice to known and likely creditors.
- Distribute assets. Follow the trust agreement carefully, when making distributions to beneficiaries. Be prepared to say “no” to beneficiaries, when they demand distributions that are not authorized by the trust.
- Terminate the trust. After paying all expenses, debts, taxes, and distributing all trust assets (if the trust so permits), you can terminate the trust and conclude your duties as Trustee.
It is a compliment to be asked to manage assets, as the person asking is confident that you are capable. Do not go it alone unless you have extensive experience in this arena.
Want to Know More?
We are holding Webinars on Basic Estate Planning weekly. This program goes over basic planning, how and why you should avoid probate, and what can go right and wrong in a basic family example. To attend, go to the Events Page of our Website and register. It’s a good refresher for our trust clients and gives useful information to Successor Trustees.
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