Revocable trust administration is usually easier to manage after the original Trustmaker dies when compared to the alternative of probate.
The trust administration is private, there is no court involved, and usually, there are fewer third-party items involved in the process. This is the heart of the “Avoid Probate” advantage of revocable living trusts.
But what really happens to a trust “after”? How is that revocable trust administered once the Trustmaker, or a couple, dies? What should one expect to happen with the trust administration process?
Well in many ways it can truly depend on a few things:
- The assets involved can make a significant difference.
- The general cooperation of the family members is critical.
- The experience of the Successor Trustee makes a difference, and
- The overall complexity of the trust can certainly affect the end result.
Most states have a Uniform Trust Code (UTC) to provide statutory guidance, but the UTC is not always clear.
There are a few core steps that usually happen with all trusts, and there can be additional items that can affect how easy the revocable trust administration will be for the Trustee. Read about how to choose a Trustee here.
5 Core Steps of Revocable Trust Administration
All trusts can certainly be different, but the following five steps usually appear with any revocable trust administration:
- Secure and Inventory the Assets Owned by the Trust – All assets are usually not in the Trust when a person passes away, and some may need to be transferred to the Trust. So, the Trustee has a duty to secure the assets owned by the Trust as quickly as possible. The definition of “secure the assets” can be impacted by many variables, but ultimately the Trustee needs to inventory what is in the Trust AND make sure these trust assets are secured from any potential threats or concerns. Good, fundamental asset records can be so important for this first step.
- Follow the Terms of the Trust – This is a large, all-encompassing step that is focused on making sure the terms of the Trust are followed. This core item will also require multiple mini-steps to complete everything as originally planned including:
- Irrevocable Trust – Usually the Trust becomes irrevocable upon the death of an original Trustmaker. This means no terms of the Trust can be changed unless the Trust terms provide a way to make these changes (i.e., a Trust Protector). The Trustee needs to identify this reality, and act accordingly.
- Separate Tax ID – As an Irrevocable Trust, a separate Federal Tax ID will be established.
- Create a New Certificate of Trust – This Certificate makes it easier for the Trustee to communicate the terms of the Trust to banks, insurance companies, etc. for future needs.
- Trust Funding Requirements – Does the Trust call for any unique funding requirements after the death of the original trustmaker?
- Multiple Steps Before Distribution – The Trustee must be very careful NOT to distribute too early and must follow all the terms of the Trust along the way.
- Inform the Beneficiaries – In most UTC states, the Trustee has a duty to keep the beneficiaries informed. This can be as simple as an initial letter, and it can be much more complicated for other trusts. It is a core part of every trust, even a trust where family members are Trustees and Beneficiaries.
- Manage Creditors – Unfortunately, debts usually exist after someone passes away. Who should be paid, and who is not really a valid creditor? The Trustee has a duty to the Beneficiaries to make sure only valid creditors are paid, and the amount of any debt is subject to negotiation sometimes.
- Distribute the Trust to Beneficiaries – Eventually, the Trustee has to get to this step, but the Trustee must be very careful to follow all the proper steps before distributing assets. Trustees can be held personally liable if assets are distributed too fast before key creditors are paid. In addition, many times the beneficiaries are eager for early distributions from the Trust.
Additional Items to Consider
It can sound rather easy with only five (5) core steps with Trust Administration. However, the following list is an overview of a few items that often show up in the process of revocable trust administration (a complete list would be too long for this article).
In addition to the core Trust Administration steps above, the following items often need to be taken care of as well:
- Publication Process – Many states have statutes defining a publication process that can protect the Trust from unknown creditors after a specific window of time. Should the Trustee spend Trust resources/dollars and go through this publication process for the protection of the beneficiary?
- Personal Property Distribution – The first assets to “walk away” are personal property assets. The Trustee is responsible for protecting these personal property assets to minimize any loss. Depending on the dynamics of the family, the value of the personal property, and multiple other items, personal property disputes can become a significant issue.
- Valuation of Trust Assets – Financial assets are usually easier to value, especially those assets involved in public markets. Real estate, personal property items, business assets and other similar items can create multiple headaches for valuation. The valuation at the time of death is most important, but the Trustee also needs to consider what they should do to protect this value after the death of the original Trustmaker.
- Managing Trust Assets – Many times trust assets need to be liquidated or modified in the trust administration process. For instance, real estate needs to be sold, or stocks need to be converted to cash. Additionally, if a business is involved, the Trustee will need to run the business or hire a manager to run the business. The Trustee will need to balance the needs of the Trust, the future distributions to the beneficiaries and multiple other items to make these decisions.
- Taxes – Those taxes still need to be filed after the death of the original Trustmaker. A Trustee’s worst nightmare is to find out the original Trustmaker has NOT properly paid taxes over their lifetime, and the Trustee gets to clean up that mess. This issue alone can cripple any trust administration, and sometimes can reduce a Trust to a very limited value after taxes are paid.
- Disputes – Beneficiaries, and non-beneficiaries, can be quite dynamic when money is involved. Any disputes may end up at the foot of the Trustee or could force a trust administration back into a court to get the disputes resolved. These situations do not usually have a happy ending for the family.
- Probate Requirements – What items were not properly funded to the Trust during the lifetime of the original Trustmaker and will require a probate administration to eventually get to the Trust, or the beneficiaries? It certainly happens, and this complication is usually handled in parallel with the ongoing trust administration.
- Trust-Specific Items – Multiple items can fall into this category including:
- Specific distribution to beneficiaries
- Special needs beneficiaries and their unique needs
- Ongoing care of existing trust assets
- Disclaimer and waivers by beneficiaries
- Beneficiary need for early distributions
- Ongoing trust reporting requirements
- Deferred-Distribution Beneficiary Trusts – Many trusts attempt to provide asset protection to a beneficiary and the assets are left to a beneficiary trust. The Trustee will have the duty to follow the terms of the Trust in setting up these beneficiary trusts before any assets are distributed to the beneficiary. Additionally, most deferred-distribution beneficiary trusts will continue for an extended period of time.
These additional items are not intended to be an exhaustive list of every possible item involved with a trust administration, but just examples of potential items. Every client situation can be different, so we usually create a customized plan to actually work through the administration of the specific Trust.
How We Can Help With Trust Administration
Unless the Trustee is a Corporate Trustee (i.e., bank trust department or trust company), most Trustees ask for assistance in the trust administration process.
Some clients just want our assistance in areas where they need our advice, but other clients ask us to complete the entire trust administration process for them.
We always offer our clients a no-cost consultation to review the situation, outline at a high level what would be involved with the trust administration, and then offer our services to assist the overall distribution of the assets.
Our experience with revocable trust administrations has shown us that the most successful clients are those who:
- keep their Trust updated for changes in their key people,
- keep their Trust updated for changes in the laws,
- make sure their assets are properly owned by the Trust and clearly identified for the successor Trustee, and
- work with a team approach for their trust administration.
A lot of these items are easily overlooked items by clients, but they can have significant positive impact after someone passes away.
If you are faced with a trust administration process, give us a call at 913-345-2323 and we will be happy to review your situation with you.