Managing trust requires an individual with the right mix of skills. Many new trustees retain an attorney to help them manage the process correctly and avoid opening themselves up to liability.
Trusts offer beneficiaries a more straightforward inheritance process than what is possible with a will. They aren’t free from challenges, however.
Notify Beneficiaries
A trustee should formally notify all beneficiaries of the decedent’s death. They should also provide them with a copy of the trust terms and their right to contest the trust. A first-time trustee needs to seek professional help in this area.
In many cases, assets like bank accounts, investments, life insurance policies, and 401(k)s are structured with POD (Payable-On-Death) beneficiary designations. The successor trustee must work directly with the financial institutions to honor those PODs.
Throughout the distribution process, the trustee should keep detailed records. This will help in preparing accurate accountings and tax filings. It will also protect the trustee if a claim is filed against them later.
The trustee should consult with the decedent’s team of professionals, including their attorneys, financial professionals, and CPAs. They should be provided copies of the death certificates and asked to gather information about the estate’s assets and liabilities. This will include a complete inventory of all assets and an appraisal for each piece of real property or personal possessions.
Gather Information
Trustees must keep detailed records about all assets and liabilities under their control. They must also gather information about any receipts and disbursements that they make. This information must include what they spent, any fees paid to trustees or others, and how much interest or income has been earned on the trust’s assets.
The trustee must also record an affidavit of change of trustee to take title ownership of the real estate in the name of the deceased person or couple, such as a deed for their house. They must also notify the tax assessor for any properties subject to property taxes.
A new trustee may only realize the complicated process once they begin. They could be liable for mistakes resulting in family conflicts, unpaid taxes, and legal problems. This is why following a trust administration checklist California and working with an experienced attorney is essential.
Appraise Assets
It is not uncommon for trustees to be overwhelmed by the amount of work required. A detailed record system and a straightforward process for handling trust assets are necessary. It is also critical to ensure that all outstanding debts are paid. This involves determining the accurate value of assets and reviewing any outstanding expenses and liabilities.
In some cases, trustees may need to hire an attorney to assist in navigating the complicated field of tax law related to the trust. This includes addressing the often overlooked issue of the “gift non-grantor trust” standard, which imposes state income taxes for certain types of trusts (including those intended to avoid federal estate tax).
As part of this process, trustees should review and address any claims against the trust. This requires assessing each claim for legitimacy and accuracy and deciding whether to pay, reject, or contest the claims. If the trustee does not believe a claim is valid, they must document their decision and reason for their determination. To do so, they must prepare an IRS form 541-ES and remit payments to the Franchise Tax Board.
Pay Debts
The advantages of a living trust include avoiding the cost and delay of probate, keeping privacy, safeguarding assets from creditors, and offering greater asset management flexibility. However, it needs diligent administration, just like any estate plan. However, like any estate plan, it requires careful administration.
As a trustee, it is essential to understand the legal framework and tasks that must be undertaken when administering a trust. While each trust is unique, some common steps should be taken at the beginning of the process to ensure that all fiduciary duties are fulfilled.
One of the first tasks is to locate and review all relevant documents. This includes tax returns, financial statements, life insurance policies, and deeds. It is also essential to inventory all assets, including their values.
The trustee shall satisfy all liabilities before distributing any assets to the beneficiaries. Failure to do so can leave the trustee personally liable.
Allocate Assets
A trustee’s duties can involve a large number of tasks. A checklist can help the trustee ensure all steps have been taken. A transparent system for recording how assets are handled is also necessary.
It is important to remember that a trustee must avoid any personal gain. Any actions taken must aim solely at serving the beneficiaries’ interests. A trustee must also ensure that all taxes are paid. Failure to pay taxes can lead to substantial legal liability under California law and federal tax statutes.
Lastly, the trustee should prepare and record tax elections.
Finally, following the conditions stipulated by the trust, the trustee must distribute and allocate assets to the beneficiaries. This requires a thorough review of the estate and its beneficiaries and an understanding of the trust terms. The trustee should also provide all beneficiaries with a distribution and subtrust allocation statement for transparency.
