The timeline for completing the trust administration process varies widely depending upon the circumstances of the case. Administering a trust of a married couple when one spouse passes away, for example, can be completed in a few short months. Settlement of a large trust with multiple beneficiaries can be more complex and thus take longer to complete. The time it takes will depend on the responsiveness and efficiency of one’s attorney and trustee, as well as any complications that arise, such as title problems, tax issues, or disputes with beneficiaries or creditors.
As a trustee, it’s important to set a timeline for administering the trust and outline a budget for administration costs. The timeline and costs should be communicated to trust beneficiaries as soon as possible. Many trust litigation cases arise simply due to lack of communication between trustees and beneficiaries.
While the administration of a trust can be quite complex depending on the nature of the case, here is a brief overview of the steps involved:
1. GIVE NOTICE
Trustees are required by law to give notice of the trust administration to all legal heirs and beneficiaries. There is a specific legal form that is required to do so which must be mailed by post. Once the notice has been mailed, any party wishing to contest the trust must do so within 120 days of receiving their notice. It is also typically advisable to notice creditors. This way a creditor claim period can begin. Any claims against the trust which are submitted after the creditor claim period do not have to be paid.
2. IDENTIFY TRUST ASSETS
Trustees can be held liable if anything should happen to trust assets. This is why it’s particularly important to identify trust assets as soon as possible. The trustee is responsible for ensuring no assets are stolen, lost, or destroyed.
3. PRUDENTLY INVEST TRUST ASSETS
During the time it takes to administer a trust, the trustee has a fiduciary duty to invest assets in a prudent and reasonable manner. For liquid funds, this essentially means investing in a way that minimizes risk but also earns reasonable returns. Real property that is not being utilized (such as a vacant home) should either be rented or sold in a reasonable amount of time.
4. OBTAIN TITLES
Titles of assets contained in the trust (titled in the name of the trust) need to be obtained by the trustee. Titles must also be obtained for assets not titled in the name of the trust but intended to be in the trust.
5. OBTAIN APPRAISALS
Appraisals for all trust assets should be obtained for all trust assets as soon as possible. This can be particularly important for future income tax because of cost basis adjustments. Essentially, this can mean lower taxes due to the elimination of unrealized capital gains.
6. PAY DEBTS
Failure to pay creditors can result in personal liability for the trustee, so this is a particularly important step.
7. FILE TAX RETURNS
It is the duty of the trustee to file all tax returns. This includes personal returns of the decedent, trust taxes, and taxes due from the probate estate, if applicable.
8. PREPARE TRUST ACCOUNTING
Trustees have a legal duty to prepare a trust accounting, according to the format prescribed by the California Probate Code.
9. PREPARE DISTRIBUTION PLAN
Trusts can be distributed in a wide variety of ways. Distribution will depend upon instructions outlined by the trust documents and any applicable state law. The trustee’s duty is to prepare a plan of distribution that follows the terms of the trust and minimizes expenses. The must also obtain the consent of all beneficiaries.
10. DISTRIBUTE TRUST ASSETS
The trustee must take the necessary steps for distributing the trust which may include title transfers, preparations of deeds, among other tasks required to settle the trust.
Can you also state the order in which a trust should be administered. I am referring to sections titled Gifts Prior to Distribution,
and then later Schedule a (real estate and financial bank and stock accounts), and Schedule B personal property listing of instructions on distribution, and then finally Instructions to the Trustee regarding additional instructions regarding distributions (or percentages of trust). What if a Beneficiary A is listed on both Gifts Prior to Distribution and Instructions to the Trustee regarding an additional gift (%) to Beneficiary A , along with percentages to other people. Thank you.
My email is sailsue77@outlook.com
Sue Macdonald
Hi Sue,
What you are describing is not "standard" to CA trusts. Each attorney may due things slightly differently. Our trusts, for example, have only a Schedule A. Unfortunately we cannot give specific advice without a thorough review of all documents.