Have you been named as the trustee of a trust? Or perhaps you’re involved in a trust in some other capacity and want to know more about the administration process?
If you’re in charge of a trust and need to make sure you’re not missing a step, this is the guide for you.
From securing assets in the trust to keeping beneficiaries informed, our thorough guide and post mortem trust administration checklist will help you meticulously manage the trust with no issues.
Our 8-Step California Trust Administration Checklist:
- Initiating the Trust Administration Process
- Creating an Inventory of Assets
- Securing and Preserving the Decedent’s Property and Keeping it Productive
- Satisfying Any Outstanding Obligations to the Decedent’s Creditors
- Preparing Periodic Accountings to Beneficiaries
- Keeping Beneficiaries Reasonably Informed About Administration
- Litigating on Behalf of the Trust if Necessary
- Marking Timely Distributions to Beneficiaries
The goal of our California trust administration guide is to give you the knowledge and confidence to be successful in your role as successor trustee.
If you have questions on any part of the checklist, find more in-depth information on each step of the process in the following sections.
What is Trust Administration?
When someone passes away leaving a trust behind, a legal process takes place to ensure that the instructions in the trust are fulfilled.
The person appointed by the court to lead this process is the trustee. It’s their responsibility to carry out all steps of the administrative process.
Trust administration is crucial because it ensures that the assets in the trust are accounted for and distributed as per the desires of the grantor who wrote it.
The steps of the administration process are designed to ensure that the trust is properly managed and that the beneficiaries are treated fairly.
Trust Administration Glossary: Five Terms You Should Know
There are terms specifically related to a trust that you aren’t likely to hear outside of that context. Understanding the meaning of these terms will give you a better perspective when moving through the trust administration process.
- Trust or Trust Fund: A trust fund, more commonly called a trust, is a legal instrument designed to allow you to leave assets to a loved one. Trusts follow a different set of rules than wills. For example, the details of a trust are not revealed during probate.
- Grantor: Grantor is the term for the person who creates the trust. Settlor is sometimes used instead, and the terms can be used interchangeably.
- Successor Trustee: A trustee is the person or institution with legal authority over the trust. Whether named in the trust or appointed by the court, the successor trustee can take charge of the trust without court intervention.
- Fiduciary: A fiduciary is a person or an organization who acts on behalf of someone else to whom they owe a duty of loyalty. In the context of trusts, a trustee is a fiduciary with access to the trust’s finances and a duty to always act in the beneficiaries’ best interests. This is a powerful role that comes with severe consequences for mismanaging assets.
- Beneficiary: Someone who is named in a trust or will as a recipient of property is a beneficiary. In the event that they’re inheriting assets with no trust or will, they’re known as heirs. If you’re in charge of trust administration, it’s crucial to provide updates to the beneficiaries and to make sure they receive what they’re owed.
What is a Trust Administrator?
The trustee is in charge of leading the trust through the administration process. While the word “trust administrator” is used in other contexts, the term trustee is correct when referring to the person who manages a trust.
Where is the Principal Place of Administration of a Trust?
In some cases, multiple states may be involved with the decedent’s passing and the eventual administration of the trust. For example, the decedent may have been visiting family in New York when they died, but their place of residence is in California, while their beneficiaries live in Florida.
Trustees have a lot of power in these situations. Since they’re overseeing the administration of the trust, it would be unreasonable to have them uproot their lives to complete the duties as trustee.
As such, unless the trust instrument specifies a specific state’s law to govern, the usual place of day-to-day activity of the trust is its principal place of administration.
Trust Administration Checklist for California
If you’ve been put in charge of a trust, it’s important to meticulously follow every step. That way you’ll avoid liability while carrying out the instructions within the trust.
The following sections explain how to administer a trust after death in California. Feel free to review the following steps of our trust administration checklist and give us a call if you have any questions.
Initiating the Trust Administration Process
To begin the trust administration process, start by gathering the trust and other related documents, including the death certificate.
Once the trustee has become familiar with the documents, California law requires them to notify beneficiaries and the decedent’s heirs if all or part of the trust has become irrevocable as a result of the death of the settlor. In part, the purpose of this is to give ample opportunity for any beneficiaries to contest the trust if they see fit.
After the trustee has notified beneficiaries about the trust administration, the official timeline to complete the process has begun.
Creating an Inventory of Assets
Before any assets can be distributed to beneficiaries, they must be accounted for. It’s up to the trustee to gather all assets related to the trust and create a detailed record of them.
This is a highly detailed process that often requires a professional appraisal. If this step is difficult for the trustee, trust administration attorneys can take the guesswork out of it, making the process easier.
Securing and Preserving the Decedent’s Property and Keeping it Productive
Once gathered, the trustee must also protect the trust and all of the assets within. Part of that involves ensuring that other people don’t unlawfully deplete the assets, especially since the trustee is accountable for any changes in the trust.
A common problem related to preserving assets in a trust is that not everyone knows the rules – family members may take it upon themselves to take items they believe they deserve. This can be one of the most challenging steps for a trustee, but it’s critical for ensuring the assets go to the beneficiaries.
In addition to safeguarding trust assets, trustees also have a fiduciary duty to keep trust property productive. That means that the trustee should not simply let income-producing assets sit.
For example, if the trust owns an investment property that can be rented, the trustee has a duty to take steps to rent the property, or to sell the property to avoid future expenditures, rather than leaving the property vacant or allowing beneficiaries or third parties to reside in the property rent-free.
An issue that is common with trusts is the settlor failing to fully fund the trust before dying. In other words, they did not transfer all the properties they’d designated to be trust assets into the name of their trust. Luckily, there is an efficient solution that potentially can be used to remedy this problem.
Heggstad petitions, which are a type of 850 petition, are tools for transferring property into or out of a trust without the property in question having to pass through the probate process, which can be time-consuming and expensive. These tools can come in handy during the marshaling and inventorying trust assets stage of trust administration to streamline the process. Though keep in mind that filing an 850 petition doesn’t necessarily mean it’ll be granted.
Satisfying Any Outstanding Obligations to the Decedent’s Creditors
Assets can’t be distributed to beneficiaries until creditors have gotten paid what they’re owed. This includes income taxes that the decedent owed to the government.
It’s up to the trustee to identify, contact, and pay creditors using the funds from the trust. It’s also crucial to evaluate the claims of creditors to ensure that their claims are valid.
Preparing Periodic Accountings to Beneficiaries
As detailed in California Probate Code section 16062, the trustee must maintain accounting records that include every transaction made in the trust. They must also send updates to the beneficiaries regarding the trust administration process.
This is one of the more challenging steps and one where lawyers are often required. Unless the trustee has accounting experience, the task of keeping records, paying taxes, and tracking every dollar in and out of the trust can be overwhelming.
Given that you have an obligation to accurately account for all trust assets and expenditures, it may be worthwhile to hire an attorney to make sure the process goes smoothly.
Keeping Beneficiaries Reasonably Informed About Administration
While you have many responsibilities as a trustee, it’s vital to remember to communicate all relevant issues concerning trust administration to your beneficiaries. Sending these messages isn’t a difficult task but neglecting it can make you liable, leading to a potential lawsuit from a beneficiary.
Sometimes there can be a difference between the reasonable level of communication the trustee thinks is appropriate and the amount the beneficiaries feel is appropriate. In such a case, it’s better to provide more information to the beneficiaries, not less.
Litigating on Behalf of the Trust if Necessary
If someone disputes the trust, it may become necessary to litigate in court on its behalf.
Litigation may also be necessary if a beneficiary challenges your role as trustee, claiming that you’ve been neglecting the beneficiaries or mismanaging the trust. When a beneficiary sues a trustee, the beneficiary generally will have the burden of proof, meaning that they will have to prove that your committed misconduct. However, by acting ethically, keeping thorough accounts and having a strong defense, you can protect yourself from being held liable for any losses suffered by the trust. .
Another common scenario in which you may need to litigate is if you have reason to believe the trust instrument is an inaccurate representation of the decedent’s true final intentions. Suppose the settlor had always said that they wanted their children to inherit equal shares of their trust, but you notice that a trust amendment executed by the settlor a few days before their death leaves the entirety of their trust to a new spouse. In this instance, it not only would be a good idea to contest the trust amendment since it likely was obtained through unethical means, but it may even be your responsibility.
In another type of trust dispute Keystone handled, the trustee had to litigate because the trust instrument contained ambiguous terms that made it virtually impossible for the trustee to accurately interpret the trust based on the language in the document. While the trustee had an idea about the settlor’s true intentions, Keystone helped him file a Petition for Instructions to request that the court interpret the ambiguous terms. This course of action kept the trustee from being accused of trustee misconduct. If he had interpreted the terms himself, he could’ve been accused of favoring certain beneficiaries over others, which likely would have been a violation of his duty of impartiality.
Making Timely Distributions to Beneficiaries
While some trusts will involve a single payout and that’s it, others may involve periodic distributions spanning years or decades. For that reason, the trustee must make distributions in a timely manner.
As a fiduciary, the trustee is required to put the needs of the beneficiaries first, and part of that commitment is to ensure that payments are made promptly and consistently, every time they’re due.
Trust Administration When Spouses are Involved
Certain aspects of trust administration are altered when a spouse is involved. The following section explains the differences between community and separate property and how a spouse impacts the administrative process.
Trust Administration After the First Spouse Dies
Trust administration after your first spouse dies works a little bit differently.
When two people are married, everything they purchased together using community funds is known as community property. As a surviving spouse, you’re entitled to 50% of that property.
While a decedent has a right to dispose of his or her share of community property at death, they do not have the right to distribute the 50% share of community property owned by their spouse.
Conversely, separate property is property acquired prior to marriage or acquired during marriage by inheritance or gift. A deceased spouse has the right to dispose of 100% of his or her separate property at their death.
It’s worth noting that the terms of the trust will play a role in determining how community or separate property is distributed at the death of a spouse. For example, the terms of the trust could confirm the character of property as either community or separate. A joint trust could also provide that upon the death of one spouse, the entire trust estate is to be split into one or more sub-trusts, each of which have different rules and regulations that may apply.
For that reason, it is always a good idea to consult with qualified probate counsel on all administration matters.
Trust Administration Books and Other Resources
Although books are available that cover trusts and trust administration, the primary source you’ll need can be found for free online.
That primary source is the Probate Code of California. It’s in that government website that you’ll find every detail and law related to how trust administration works and your responsibilities as trustee.
Count on Keystone Law Group for Professional Trust Administration
Trust administration can be a complex process and there’s no shame in enlisting the help of professionals. As a trustee, you want to make sure each step is meticulously done, and not everyone has time to devote to this process.
Keystone Law is dedicated exclusively to probate law, including trust administration and litigation. Since 2014, our attorneys have worked tirelessly to provide favorable outcomes for each and every client.
