The process of collecting, managing, and distributing a deceased person’s accounts, property, and other possessions that have been titled into the name of a trust.
The Nine Steps to Trust Administration
1. Locate the estate planning documents (i.e. trust, last will and testament).
In order to begin the process of collecting, managing, and transferring a deceased person’s accounts and possessions, we first need to reference the instructions left by them. The trust document will give detailed instructions about what is supposed to happen to any accounts and/or possessions that are owned by the trust. During his or her lifetime, the deceased individual will have changed the ownership of these items from themselves to the trust. This could have been accomplished by signing a new beneficiary designation, deed, or payable or transfer on death form. It is important to note that the instructions contained in the trust document only affect those accounts or possessions that have had their ownership changed to the trust. A last will and testament may have also been prepared and signed as part of the deceased’s overall estate plan. The will dictates what happens to those accounts and possessions that were still owned by the deceased at his or her death. In some cases, the last will and testament will state that all of the accounts and possessions are to be given to the trustee of the trust so that the trust instructions will control the ultimate transfer of the accounts and possessions. In other cases, the last will and testament may provide different instructions as to how items are to be transferred. Both of these documents are crucial to locate because they are proof as to what the deceased person’s wishes were.
2. Gather Other Important Information (i.e. insurance policies, real estate deeds, bank and financial account information and tax returns).
In order to properly understand the accounts and possessions the deceased had when he or she died, it is important to collect these items as they will be needed later.
3. Meet with an Estate Planning Attorney.
With all of the important information in hand, we can sit down and map out the next steps in the administration process. Depending on the amount or type of accounts and/or possessions the deceased owned, there may be additional considerations on how to move forward or who will do what. Also, once the attorney has reviewed the trust and the last will and testament, the appropriate legal documents can be prepared to allow the named trustee to move forward with collecting and managing the deceased individual’s accounts and possessions. Because the original owner has died, most financial institutions and other businesses are going to want proof that the new trustee has the authority to ask questions about any bank accounts, business interests, etc. before they divulge the information or let the trustee make decisions about what happens to them. The attorney can make sure that the appropriate proof is provided to these third parties.
4. Make a List of Debts and Creditors.
Even in death you cannot escape your creditors. Before any transfers are made to the beneficiaries, all outstanding bills or debts have to be paid. Then, if there are funds left over, the trustee can transfer the accounts and possessions to the individuals listed in the trust.
5. Make a List of the Beneficiaries and Heirs-at-Law and Their Addresses.
Beneficiaries are those individuals, entities, or charities that have been named in the trust document to receive something. Heirs-at-law are the deceased individual’s family members. Depending on the circumstance, a trustee may be required to provide certain pieces of information within a specific time period to a deceased person’s children, grandchildren, parents, siblings, or others even if those individuals are not listed in the trust document to receiving anything.
6. Gather, Secure and Create a List of Property, Accounts, Jewelry and other Valuables of the Deceased.
Depending upon what types of accounts and possessions were owned by the deceased person, this process can take a little time and may require some outside help. However, it is important that this information be as complete and accurate as possible so the instructions in the trust document are carried out fully and accurately. When an individual dies, there can be a mad dash by family members to clear out the house. In addition to a fear of ”not getting their fair share” they may also want to move things along as quickly as possible. While their hearts may be in the right place, it is crucial that the trustee be the only person handling the accounts and possessions and that he or she fully understands the value and extent of those accounts and possessions before transferring anything to the intended recipient.
7. File Income and Estate Tax Returns and Pay and Taxes Due.
When a person dies, he or she still has to file an income tax return for the year in which they were alive. Because he or she is no longer alive, it is the responsibility of the trustee to make sure that this final individual tax requirement is done. In addition, when a person with a trust dies, the trust becomes its own tax paying entity and now has to file it’s own a tax return. It is the trustee’s responsibility that this is done accurately and promptly. For those individuals who die owning over $11.58 million in 2020, the estate tax exemption amount, the trustee will need to make sure that an estate tax return is filed. A trustee may also opt to file an estate tax return if the deceased individual was married and the trustee would like any unused exemption amount to be available for the surviving spouse (portability).
8. Maintain Trust Accounting.
Keeping proper records is crucial. For those who have questions or are not comfortable with managing the bookkeeping for the trust, this may be a place where a trustee needs to hire a professional to assist them (attorney, CPA, etc.). Every time the trust receives money (such as from the sale of artwork or closing out a brokerage account) this amount needs to be deposited into the appropriate bank account for the trust and an entry made signifying where the money came from. Similarly, if a trustee needs to pay an expense (deceased’s credit card bill, mortgage payment, CPA bill), this money needs to be paid from the trust’s bank account and a record kept of how much money was spent and what it was spent on. In the event the trustee believes that there is enough cash or that a specific piece of property can be distributed to a beneficiary without jeopardizing his or her ability to meet the financial obligations of the trust, a partial or full transfer can be made. However, when this is done (especially if it is cash), the amount and the recipient needs to be identified. Because the trustee is acting for the benefit of the beneficiaries, he or she needs to make sure that the beneficiaries are kept informed about the status of the trust. This is usually done through the use of an accounting, which is a statement showing the value of the trust and any additions (deposits) or subtractions (expenses) that have occurred over a period of time. However, in order for the accounting to be effective, it needs to be complete, accurate, and transparent.
9. Distribute Property, Accounts, Jewelry and Other Valuables According to the Trust.
Once all of the steps have been completed, the trustee can set to work fully transferring the accounts and possessions of the deceased to the intended recipients. In some cases, this may mean writing the beneficiary a check but in others, it may mean, signing a deed to real estate over to the beneficiary or signing a brokerage or other financial account over. For any document that needs to be executed, the attorney can assist in ensuring that the document is prepared, completed, and executed properly so that the beneficiary receives everything they are entitled to and that the trustee has fully done his or her job. Regardless of what possession the beneficiary receives, it is necessary that each beneficiary sign a receipt acknowledging what he or she has received as part of the trust administration and that he or she understands that this is the full amount they are entitled to.
Losing a loved one is never easy. Whether it is due to a long drawn out illness or something that happens suddenly, when a person dies, everything changes.
First, family members are going to be looking to get “their share.” “Surely great aunt Ethel wanted me to have her wedding ring, she said I was her favorite.” From a legal perspective, as trustee, distributions have to be made according to the terms of the trust. This is why a trustee can’t have people clearing out the house. Even if the family member is entitled to something, as soon as they receive confirmation from the trustee that they are set to inherit, they will want it now. Yet, as we discussed, in order to ensure that all creditors, expenses, and taxes are taken care, we cannot be handing out money just because someone wants it now. While this may seem very erratic or annoying, this is how some people process their grief and it is important that in all of the trustee’s interactions with beneficiaries that he or she try and understand where they are coming from so you can build and maintain a good working relationship.
Next, while the family may be aware that a loved one has died, the rest of the world may not. As the representative of the deceased individual, it is the trustee’s job to inform the appropriate people or government agencies. For example, this means contacting creditors, federal government agencies (Social Security Administration, Medicare, etc.), state government agencies (secretary of state), and the credit bureau. Taking this step will help the trustee to determine any outstanding debts, prevent identity theft, and stop any government benefits that the deceased could have been receiving.
It may seem like a lot to handle, but rest assured, we are here to assist in any way we can so that if you need time to grieve, you can handle that while we begin the trust administration process.