If you’ve been asked to administer a trust for the estate of a loved one, you may not realize that it is a job with a lot of responsibilities. Here’s a list of the essential steps to administering a trust that will guide you through the process.
When it comes to administering the trust of a loved one, there are a lot of responsibilities. It can be overwhelming. Many people who find themselves in this position don’t know much about the job. This can lead to a lot of questions and potential problems at a critical time.
Here are 16 essential steps you should always take to avoid costly mistakes when administering a trust to help guide you through the process:
1. Understand the Instructions Outlined in the Trust
Why is this important? Trusts are legally enforceable documents. If successor trustees don’t follow trust laws and California probate laws, they can be sued, penalized, and removed. They may also face serious income and property tax losses and penalties if forms are not completed properly and promptly.
2. Authorize the Successor Trustee
Why is this important? This clarifies who can act for the trust and avoids legal disputes. A successor trustee must authorize they accept the position with an acceptable document.
3. Change the Vesting on Bank Accounts
Why is this important? Successor trustees will not be able to access the funds in bank accounts until they go to the bank and provide proof of their position listed on the trust document.
4. Identify the Beneficiaries and Anticipate Potential Disputes
Why is this important? Trust beneficiaries must receive legal notifications, accounting, and other information. Neglecting to notify or distribute information to beneficiaries can lead to penalties, litigation, and personal liability to the trustee. It’s important to identify any possible claims or problems early to avoid disputes and lengthy litigation.
5. Send Proper Notices on time
Why is this important? A trustee can be removed, sued, and penalized for failing to send proper notices at the right time. Besides, some notices establish legal deadlines to make claims and contest the trust. Without proper notification, the trust and trustee could be liable and face litigation for years to come, which could delay the closing of the trust.
6. Analyze Real Estate Value, Occupancy, and Rents
Why is this important? The county must be properly notified to avoid an increase in property taxes and apply for exemptions. Trust property is required to be rented at market prices or sold unless the trust states otherwise. There must be an accurate accounting of rental income, and relatives who live in the family home after the parents die must pay rent. This can lead to potential litigation and inaccuracies. The trustee can be sued and held personally liable if the property taxes increase, and if properties are not rented.
7. Properly Value Real Estate, Stocks, and Businesses.
Why is this important? There may be severe income tax consequences without an appraisal performed by a licensed appraiser as of the date of death.
8. Properly Sell or Manage Real Estate and Business Interests
Why is this important? The trustee is legally responsible to the trust beneficiaries to professionally manage the assets. For this reason, the trustee can be sued, removed, and held personally liable for rental income losses, business losses, or mismanagement.
9. Provide an Inventory and Appraisal of All Assets in the Trust
Why is this important? Trust beneficiaries and government agencies must know what is included in the trust and their values as of the date of death. By law, the job of the trustee is to manage, account for, and distribute the assets in the trust. The trustee can be sued, removed, and penalized for failing to provide a complete accounting and inventory of the assets.
10. Take Care of Life and Property Insurance Matters
Why is this important? The trustee must take care of insurance matters so that the beneficiaries will be paid. The trustee can be removed, penalized, and held liable for losses that should have been covered by insurance.
11. Manage Trust Money and Follow IRS Reporting Laws
Why is this important? Trust money must be kept in bank accounts, and expenses must be recorded and accounted for. Taxes and other required IRS reporting must be completed. Accountants and attorneys should be hired and paid from the trust money to ensure proper management. Failure of tax and financial matters is a major cause of trust litigation.
12. Notify Creditors and Pay Outstanding Debts and Taxes
Why is this important? Before trust money is distributed to the beneficiaries, debts, and taxes must be paid. If beneficiaries withdraw money from the trust before debts and taxes are paid, they are personally liable to replace it. A trustee can be sued, removed, and penalized for failure to pay debts and taxes. Pay attention to legal deadlines and cutoffs concerning debts and taxes.
13. If Required by the Trust, Divide the Assets into Subtrusts
Why is this important? Many trusts require the assets to be divided into subtrusts on the death of the first spouse. This is usually to save estate taxes and to preserve the deceased spouse’s half of the trust estate. For example, if the surviving spouse is a stepfather, it protects a portion for the trust beneficiaries.
14. File Tax Returns for Income, Estate, and Gifts
Why is this important? The trustee should consult tax professionals to prepare and file all required tax returns. The trust and the trustee can be held personally responsible for tax fraud. A trustee can be removed, sued, and penalized for neglecting to prepare and file tax returns promptly.
15. Provide Proper Accounting to Beneficiaries
Why is this important? The CA probate code laws have strict requirements for trust accounting. A properly prepared accounting is due one year after the date of death and every year thereafter until the trust is distributed and closed.
16. Complete Necessary Forms and Requirements for Closing and Distributions
Why is this important? Everything in the trust must be distributed to the beneficiaries after payment of debts, taxes, and fees. If the trust does not specify a date, the law requires payment in a reasonable time.
If you have been appointed as a trust administrator and need advice on how to go about the process with the help of an estate planning attorney, talk to us at Moschetti Law. Consult our reliable estate planning lawyers by calling 888-664-1848.