Trust Administration

Kinds of Trust

A trust has a trustee who is in charge of dealing with estate assets. There are many different kinds of trusts.  Revocable trusts, can be amended or revoked by the person who makes the trust, often called the settlor, or sometimes, trustor.  There are irrevocable trusts, which cannot be amended or revoked under most circumstances.  If you put assets into an irrevocable trust they are removed from you estate, the same as an outright gift.  This is a form of tax planning. But with the law now allowing a married couple to leave an estate of more than $23,000.000 without any estate tax liability, the tax planning portion of estate planning is not as important as it once was. There are living trusts that take effect when they are made, and there are testamentary trusts that take effect when the settlor dies. There are charitable trusts, and special needs trust, and others.

Simple Trust Estates

A trust is set up so that if the trustee dies or become incapacitated, someone else takes over as trustee. That person is called the successor trustee. In that way the trust (the legal owner of the property) continues to exist at the death of the settlor, thus no probate is required. In many cases the new trustee needs little, if any, legal help.  If the major asset is the family home, and there is a savings account and a CD or two, and that is it, there is not a lot of complicated work to do, though the formalities of administration, such as notice to beneficiaries and keeping beneficiaries informed as to the status of the trust administration must be complied with.  There must also be a tax id # for the trust and an affidavit of death of trustee recorded.  I have had many clients who handled the entire administration with little or no help from me or any other attorney.

More Complex Trust Estates

The successor trustee often needs help in a larger, more complicated trust. That is true especially in the case where one of several siblings is named as the successor trustee, and the siblings do not get along well.  The trustee administers the trust without any court action, unless problems arise that require court intervention.  The trustee must identify and value all trust assets.

Formal appraisals of real property often must be obtained.  It is important to know the value of assets at the time of death, both for estate tax issues in very large estates, and for potential income tax issues in other estates.  If your parents, for example, purchased their home in 1975 for $30,000 and at the time of the death of the survivor it was worth $750,000, there would have been a $720,000 gain for income tax purposes if the home had been sold by your parents.  The amount of gain is determined by subtracting the tax basis from the value.  The tax basis is usually the amount paid for the home, with some possible adjustments. In our case the tax basis was $30,000. On the death of the survivor of the owners, and the passing to the beneficiaries of the trust, the new owners get an adjusted tax basis equal to the date of death value of the property. In our case the date of death value was $750,000. Thus the new owners could sell it for $750,000 with no income tax consequences. This is a very important concept to keep in mind when dealing with real estate in a trust.

When it is time for a final distribution of assets from the trust, and often before then, the trustee must have an accounting of trust activity prepared and delivered to the beneficiaries.  The beneficiaries then have the right to examine the document and, if there are serious issues, to ask the court to step in to determine if the actions of the trustee, as related in the accounting are acceptable.  Were assets invested properly? Were trustees fees reasonable? Are assets being distributed properly? Are the terms of the trust being complied with?

Most trust administrations, go from start to finish with no major glitches, but it is a good idea to have an attorney working with you who knows how the process works, if issues do arise.