by Cody Jones
When a client creates a revocable trust, they do so to avoid probate and provide a smooth transition of their assets after their death. Upon the death of the client, the successor trustee steps in to manage and distribute the assets according to the trust’s terms. As it can be difficult to step into someone’s shoes after their death to administer their estate, this article provides a basic framework of the trust administration process for the successor trustee.
The first step is to locate and review the trust document and any amendments. The successor trustee must thoroughly read and understand the trust’s instructions, including who the beneficiaries are, what they are entitled to, and any special provisions. This may require the guidance of legal counsel. Assets, even small personal items, should not be distributed until the trust is understood completely.
To document the successor trustee’s authority to control trust assets, the trustee will need certified copies of the settlor’s death certificate and an affidavit of acceptance of trust executed by the successor trustee. This affidavit is often required by banks, financial institutions, utility companies and government agencies. Sometimes such entities will ask for “letters testamentary” or “letters of administration.” If the settlor successfully funded their trust and left no assets in their individual name, such letters will not be necessary, and the trustee will need to explain to the third party that no probate was necessary, therefore no letters will be obtained. The affidavit should provide sufficient authority. Assuming the successor trustee is a trusted individual, the settlor might choose to facilitate this process for the successor trustee by providing access codes and passwords to the trustee prior to the settlor’s death. For example, if the trustee does not have the settlor’s cell phone password, a two-step verification system for some accounts may be a hindrance.
As access increases, the trustee must identify all assets titled in the name of the trust and assume control of the trust assets. This includes real estate, bank accounts, investment accounts, stock certificates and personal property. Assets that were not titled in the name of the trust may have to go through probate unless other estate planning tools (like joint ownership or beneficiary designations) apply. To prevent unnecessary headaches for successor trustees, clients who established a trust should regularly review assets to make sure the title of assets are held in the trust name or direct beneficiaries are named on accounts. The trustee will only control trust assets. The trustee will be required to account for income and expenses of the trust from the date of death, so the trustee should be diligent in documenting transactions from the date of death.
Generally, we encourage trustees to maintain transparency and provide regular updates to the beneficiaries while retaining authority over trust decisions. Oftentimes, beneficiaries do not understand why they cannot receive assets immediately. Administering an estate or trust can be delayed for reasons outside the trustee’s control, such as tax filing dates, negotiations with creditors of the estate, unclaimed property claims, delays from county authorities, and real estate transactions. Maintaining transparency alleviates concerns and gives parties an opportunity to raise reasonable objections. Secrecy almost always leads to conflict.
Before distributing assets or allocating assets into trusts for the beneficiaries, the trustee must pay all outstanding debts of the settlor, final expenses (such as funeral costs), and taxes. If the trust administration process is prolonged or designed to last over a period of years, the trustee must safeguard assets, keep detailed records, and make prudent investment decisions. The trustee is responsible for filing the settlor’s final income tax return and any required trust tax returns. Estate taxes may also need to be considered, although most estates are not large enough to trigger federal estate tax.
Once the trustee has paid all expenses, the trustee can distribute the remaining assets to the beneficiaries as outlined in the trust. This can be done outright or in stages, depending on the trust’s instructions. If the trustee has discretionary power to distribute trust funds for the beneficiaries’ health, education, maintenance and support, the trustee may collect information from the beneficiaries to ascertain their support needs. After all tasks are completed and the assets have been distributed, the trust can be closed. The trustee should prepare a final accounting and obtain written receipts or releases from the beneficiaries. When the trust fund is fully distributed, the final tax return is filed and releases are obtained, the trust administration process may be considered complete.
