Administering a trust can be complicated. Trust documents (often referred to as Trust Agreements) can be lengthy and contain legal lingo that may be difficult for a layperson to comprehend. Since most nominated trustees are not professional trustees and instead are family and friends of the deceased settlor, they may not fully understand the nature of their duties and obligations as trustee and even the terms of the trust. Failure to understand what is expected of a trustee can lead to improper administration of the trust which can in turn lead to expensive and lengthy lawsuits. This can be avoided if a trustee obtains legal counsel to advise them of their duties and obligations through the trust administration process.
This article is a very brief summary of the steps of a trust administration process in Florida. This is not comprehensive of all steps involved and should not be used as a guide in administering the trust without further explanation. Every case has a specific fact pattern that requires further analysis to determine which steps are relevant to that particular case. This article should not be portrayed as legal advice, but instead is general in nature.
Trustee’s review of trust and acceptance of Trusteeship
Upon the death of the settlor (person creating the trust), the nominated trustee must obtain a copy of the trust and carefully review its terms. Most trusts contain provisions advising the successor (or alternate trustee) what is required in order for him or her to accept their role as successor trustee. If the trust is silent, Florida law governs the procedure for accepting trusteeship.
Gathering information
The trustee should immediately begin gathering information, including the names and addresses of any accountants who have worked with the settlor, financial advisors and brokers who may be in possession of trust assets, and contact information for the beneficiaries of the trust. The trustee should make a detailed list of important contacts to use throughout the trust administration process. The trustee should also begin gathering a list of assets and liabilities of the trust.
Obtain a Tax Id Number for the trust
The trustee should obtain a Tax Id Number for the trust and hire an accountant to assist in filing any tax returns on behalf of the decedent and if necessary, the trust. The accountant or an attorney assisting with the administration of the trust can assist in obtaining a Tax Id Number. A Tax Id Number can also be obtained online by the trustee.
Notice of Trust
Regardless of whether a probate is required, a trustee of certain types of trusts are required to prepare and file a Notice of Trust outlining the name of the trust and information pertaining to the trustee of the trust. This is required to be filed with the Clerk of Court. The purpose of this notice is to advise any potential creditors of the existence of the trust. Creditors of the decedent could have up to two years from the decedent’s date of death to file a claim against the trust assets. (This time frame can be limited if a probate estate is initiated for the purpose of publishing notice to creditors and serving all potential creditors).
Initial contact with the beneficiaries
The trustees should keep the beneficiaries informed throughout the trust administration process. One of the most common complaints of trust beneficiaries is that the trustee does not keep them informed. The trustee is required to advise the beneficiaries of the trustee’s acceptance of trusteeship as well as disclose information pertaining to the trust, including the name of the trust and name and address of the trustee. This notice should be provided within the first sixty (60) days of the trustee’s appointment to avoid violating Florida law.
A trustee should also serve statutory notice on the beneficiaries as well as decide whether notice should be served on any other individuals who may possess a claim adverse to the trust. By serving these notices, a trustee will shorten the timeframe in which the trust can be challenged by individuals receiving statutory notice.
There are other notices that a trustee should include when notifying beneficiaries of actions taken by the trustee. By properly serving these notices on the beneficiaries, a trustee can limit their own liability for certain actions taken.
Evaluating assets
A decedent may have had many different types of assets titled in the name of trust. For example, real estate (in Florida and other states or territories), brokerage accounts, savings accounts, checking accounts, CD’s, money market accounts, stocks, bonds, securities, cash, personal property items, gold or silver, to name a few. The trustee should begin an informal list (often called an inventory) of the assets of the trust and value those assets on the date the trustee began serving. It is also wise to obtain the date of death value of these assets.
This will help the trustee stay organized, be able to accurately report the assets to the accountant or CPA and inform the beneficiaries of the assets and values of the trust.
The trustee should also review all investment portfolios involving the trust assets and speak with a trained professional advisor regarding the nature of these investments. The terms of the trust may require a trustee to prudently invest the trust assets for the benefit of both income and principal beneficiaries of the trust.
Evaluating Liabilities
Prior to the beneficiaries receiving their distributions from the trust, the trustee must evaluate the trust liabilities. This includes creditors of the decedent (such as credit card debt, medical debt, mortgages and insurance), as well as expenses pertaining to the administration of the trust (trustee’s fees, attorney’s fees, tax liability, and CPA and accountant fees). The trustee should consider reviewing bank statements of the decedent, check ledgers, invoices, statements and tax returns of the decedent. The trustee may want to consider forwarding the decedent’s mail to ensure all statements and invoices are being reviewed.
As set forth above, a creditor has two years from the date of the decedent’s death to file a claim against the assets of the trust unless this time frame is shortened by initiating a probate proceeding and serving notice on the purported creditors.
Distributing trust assets
A trustee should implement a plan of distribution which should be communicated to the beneficiaries. This distribution should take into account the liabilities of the trust, the terms of the trust and the preference of the beneficiaries (whether to receive the assets in kind or in liquid form). The trust agreement typically guides the trustee as to how to distribute the assets.
If a trust owns real estate a Deed will be required in order to distribute the real estate to the beneficiary. If the decedent owned property in more than one state or territory they may have to retain counsel in that state or territory to assist in preparing one or more Deeds in order to transfer the property to the intended beneficiary.
Problems with Beneficiaries
It is not uncommon to have a dispute between one or more beneficiaries or between the beneficiaries and the trustee. The trustee owes to treat all beneficiaries the same.
The trust administration process is often complicated and confusing, and can seem overwhelming at times. Many times the process is hampered even further due to the emotions and conflicts that arise among the trust beneficiaries as a result of family dynamics and the grieving process. If not properly dealt with, these emotions and conflicts often play out in court in protracted and expensive trust litigation. Understanding how to properly interpret the terms of the trust and the many duties and obligations of a trustee is imperative for a successful trust administration proceeding.
Helpful hints for trustees
1) Seek the advice of counsel to assist you in carrying out your duties as trustee.
2) Keep accurate records of all transactions made.
3) Hire and rely on professionals such as attorneys, accountants and money managers to assist you in your duties as trustee. This is money well spent!
4) Prepare an informal accounting and use that to track your expenditures and receipts as trustee. This will also cause you to be proactive in the event a formal accounting is required later on in the trust administration.
5) Keep the beneficiaries informed throughout the trust administration process. A fully informed beneficiary is a happy beneficiary. A happy beneficiary is less likely to sue their trustee. Once the court is involved, a simple trust administration turns into a lengthy and costly process.
6) Obtain waivers and receipts for all distributions made to beneficiaries. These waivers and receipts should be in writing and even witnessed and notarized.
7) Properly disclose the actions you take as trustee. Also, it is imperative to use limitation notices when disclosing your actions to shorten the time frame in which beneficiaries have to challenge your actions.
8) Review the trust document. Then review it again. Make sure you are familiar with its terms and have copies of any changes or amendments made to the trust to ensure you have the full and complete trust agreement. Make sure you understand what is expected of you and if you are unsure, ask!