What is Trust Administration?
Trust administration is the process by which a trustee (person in charge of a trust) manages the property in the trust consistent with the terms of the trust. For a living trust, the original trustee is usually the settler (person who forms the trust) and manages his or her property in the manner he or she sees fit. However, once the original trustee dies, the successor trustee must administer the estate for the benefit of the beneficiaries (people who may gain from the trust) and in accordance with the terms of the trust and state law.
I have just become a successor trustee. What do I do?
As the trustee, you must fulfill certain fiduciary duties. That is, you must manage the property in a way that will be most profitable for the beneficiaries while complying with the terms of the trust and with state law. Trustees should consult an attorney for assistance with this process because of the trustee’s potential liabilities for managing the property incorrectly. For instance, a well meaning trustee may try to manage the property alone, yet make a mistake and inadvertently trigger tax assessments lowering the value of the trust to the detriment of the beneficiaries. If the trustee causes the value of the trust to go down by mistake or by failure to perform a duty, the trustee may be responsible for paying the difference in value. Again, the financial decision a trustee makes can have a significant impact on beneficiaries, so it is important to consult an attorney who has experience in trust administration.
What are the trustee’s duties?
Below are basic trustee duties, but a trustee may have additional duties depending on individual situations.
The trustee must file the deceased’s original will and any amendments or supplements with the country clerk of the deceased’s residence at the time of death. This filing must occur within 30 days of the deceased’s date of death. Also, the trustee must mail a copy of the will to the named executor of the will even if the estate is exempt from probate.
According to the CA Probate Code, a trustee must send a written notice to trust beneficiaries and heirs within 60 days of the date of death. This notice be written in the correct format and must contain specific information on their rights to obtain a copy of the trust, to contest the trust, and the time limits involved. Note: failure to send the notice extends the contest time limit to four years and may cost the trustee additional damages.
The trustee must comply with the California Uniform Prudent Investors Act. That is, “a trustee shall invest and manage trust assets as a prudent investor would, by considering the purposes, terms, distribution requirements, and other circumstances of the trust. In satisfying this standard, the trustee shall exercise reasonable care, skill, and caution.” Prob C §16047 In addition, the statute requires trustees to select risk and return objectives appropriate to the trust, diversify, consider investments in light of the big picture of the portfolio, avoid incorrect or unreasonable costs, and account for possible tax consequences. Also, trustees must file an annual accounting of the trust to trust beneficiaries.
The trustee must file a federal estate tax return within nine months of the date of death if the deceased’s assets were valued at over a set amount. The amount is calculated in different ways depending on individual circumstances. However, the deceased’s whole estate is calculate not just the assets in the trust.