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Estates & Trusts

Steps to Succeed as the Successor Trustee

By June 27, 2018No Comments

Being named the successor trustee of a living trust requires a great deal of responsibility. Having a basic understanding of the trust administration process is essential to fulfilling the intentions of the trust and limiting your personal liability. Familiarize yourself with the process now to eliminate stress and carry out your duties as a successful trustee.

A living trust is a type of trust where assets are transferred into the trust while the grantor is still alive. The largest advantage of creating a living trust is that it provides a roadmap for the distribution of assets after the death of the grantor and avoids the cumbersome probate process. Additionally, it can be helpful as an estate planning tool.

Following the passing of a grantor, a trust enters a trust administration phase. This is the period between the death of the grantor and the fulfillment of the trust. As the successor trustee named in the trust documents, you need to be aware of and to carry out certain duties to ensure the trust successfully transitions out of the administration phase.

As the trustee, the first step to ensuring the trust is administered correctly is to obtain and understand the trust documents that outline the plan for the trust and its assets. It is often recommended to consult an attorney to assist in this process to ensure the trust operates in accordance with applicable laws, to decipher the difficult concepts, and to limit your liability as a trustee. One of the responsibilities as the trustee is to ensure that a copy of the trust agreement is provided to each of the beneficiaries. The California Probate Code requires that the trustee send a notice to all Trust beneficiaries and potential heirs within sixty days of the date of death.

After reviewing and understanding the trust documents it is important to prepare an inventory of all assets and debts held by the trust. For items such as real estate and business interests, where the market value may not be easily determinable, an appraisal may be necessary. This inventory list serves many functions and will be used throughout the course of the trust administration process. A trust accounting may be required unless all of the beneficiaries of the trust waive this requirement.

Now that all items have been accounted for, you should notify specific parties that the grantor has passed away. These parties include the social security administration, any retirement accounts or lifetime annuities, life insurance companies, and anyone who either makes recurring payments to the grantor or who will provide benefits to others after death of the grantor. Each of these entities will require a different process of notification and resolution. Typically, the simplest way to notify each party is to call. Make sure that you have the grantor’s social security number, original death certificate, trust documents, and account number (if applicable) on hand in case they are required.

Obtaining access to the trust’s bank accounts in order to pay trust expenses is another step. Most financial institutions require formal authorization as well as the presentation of an original death certificate of the grantor to access accounts. Concurrently, determine if the grantor had any unpaid bills prior to death. Common outstanding bills include credit cards, medical expenses, property expenses such as rent or utilities. Any creditors should be notified that the grantor has passed away. This will allow the trustee to discuss cancellation of automatic recurring payments and changing the billing address so that the trustee has access to any final bills.

Next, obtain a federal tax identification number with the IRS. The identification number can be applied for on the IRS website and the number will be provided immediately after completing the application process. Many living trust documents dictate that an administrative trust be created and used for the period after death and before fulfillment of the trust (final distributions, funding new trusts, etc.). This administrative trust, or any other trust created, will need a tax identification number to set up bank accounts, transfer title of assets, file tax returns, and perform other functions.

It is important to transfer the title of all assets. Depending on the type of asset, different methods are used to transfer title. For checking, savings, and brokerage accounts a new account is first opened with the trusts name and tax identification number. The funds or securities are then transferred from the original grantor’s account to the new one. For business interests including partnerships, corporations and LLCs, the businesses should be contacted in order to transfer the ownership interest to the trust. Be aware that when a grantor has a living trust real estate will usually already be titled in the name of the trust. However, the trustee should check county records to ensure this is the case and file a quitclaim deed with the county to transfer title to the name of the trust, if necessary.

It is the trustee’s responsibility to file all required tax returns. This includes the grantor’s final individual income tax return (including any unfiled ones from previous years), the trust’s annual income tax returns, and an estate tax return if the deceased total assets and lifetime gifts exceed $11,180,000 if they died in 2018 ($5,490,000 in 2017). Even if the gross estate value does not trigger an estate tax filing, an estate return may still be filed to port over any unused exclusion to the surviving spouse, if applicable. The inventory list and the terms of the trust agreement will be critical in considering whether or not an estate tax return should be filed.

Lastly, if the trust holds investment assets, be mindful in selecting an investment advisor and financial institution. The advisor should effectively manage the trust’s assets to generate enough cash to cover expenses and income to distribute to beneficiaries while being mindful of managing risks and tax implications.

As the trust administration process can be complex and confusing, it is beneficial to plan ahead. This is a general list of items that a trustee should be aware of. However, it does not encompass all duties, responsibilities, and actions required by a trustee. Every situation is different and we suggest seeking professional advice to ensure that a trust is administered correctly to limit legal risk as a trustee. For additional information or assistance with the trust administration process, please feel free to contact your L&B professional at (858) 558-9200.

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