If a person has a living trust, and successfully transferred his assets to his trust during his lifetime, then no probate is necessary to transfer his assets to his heirs at his death. The successor Trustee will take over management of the decedent’s assets immediately so that she can pay the decedent’s debts and distribute his assets to the proper beneficiaries.
Although there is no formal probate, it is still essential that the successor Trustee follow the rules set forth in the decedent’s trust along with state and federal laws. This is the process called “Trust Administration.” Beyond the specific requirements of the trust, the successor Trustee will have to:
• Notify each of the decedent’s beneficiaries of the existence of the trust and their right to see the trust instrument.
• Identify and gather all the decedent’s assets.
• Identify each of the decedent’s creditors, and either pay all outstanding bills or successfully negotiate them.
• Diligently keep records and annually provide an accounting to each beneficiary (or obtain a waiver).
• File certain tax forms with the IRS.
• File the decedent’s final income tax return, file an estate tax return (if the decedent’s gross assets are over a certain amount), and file fiduciary income tax returns if the trust earns income before it is distributed to the beneficiaries.
• Obtain taxpayer identification numbers and open up new bank or brokerage accounts if new trusts are to be created for the benefit of minor, disabled, or other trust beneficiaries.
• Distribute remaining assets to beneficiaries in a timely fashion.
• Distribute tangible personal property as indicated by the decedent and more.
Many Trustees choose to hire attorneys to do these tasks because they can be time consuming. Also, most Trustees want to “play by the rules” rather than risk an allegation of wrongdoing by one of the beneficiaries. Remember the Trustee may be held personally liable if they breach their duty to the beneficiaries.
The law assumes that the Trustee will act properly. However, if a beneficiary believes the Trustee is not complying with the terms of the trust instrument or the law, he always has the option of challenging the Trustee in Court. It is in a successor Trustee’s best interest to consult with an attorney or accountant before taking any action that could be considered unwise or unduly favor one beneficiary over another.
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