Like being the executor of a will for the first time, settling someone’s trust as their trustee will teach you the meaning of “trust administration.” The person named as the last trustee to settle one’s trust after you are gone has the duties of a trustee and the obligations of trust administration.
This work can go quickly and smoothly or slowly and painfully. It all depends. Here are some ideas for who should do this for you. I will use the term “trustee” to refer to the last trustee for a trust who is authorized to administer and close a trust. The executor of someone’s estate has different responsibilities, but often the same person is designated for both jobs.
Technical and legal issues. Getting assets distributed from one’s trust involves both legal and financial documents, sometimes requiring legal and financial advice. When attempting to liquidate investments and distribute the assets, you might encounter mistakes and problems. A common problem is that someone did not title their house or securities account in the name of their trust, but intended it to be included. This is similar to not naming beneficiaries for your retirement account or life insurance policy, often requiring court approval of the distribution plan. An uncommon problem might be locating a beneficiary whose residential address in not known. One’s distribution instructions may also be lengthy and include contingencies.
Competence. The person administering your trust needs enough legal and business experience to not be overwhelmed by tasks. They can employ professional advisors to assist them, but they still need familiarity with how do this when needed. Referrals from one’s current advisors about who has competence in the specific things you need help with is a good place to start.
Emotional Issues. If a family member, the trustee who will administer the trust may begin his job while mourning. Whether or not they enlist professional advisors, there may be legal and technical impediments to getting the job done. Delays can frustrate heirs and potentially create rifts in family relationships with their attendant emotional distress. Some problems take too much time and possibly the need for probate court. This is where selecting an independent or corporate trustee may be worth considering (See my last blog.)
Paperwork. When we attorneys use the term, “trust administration,” it means providing the necessary paperwork for the trustee to distribute the assets and close the trust. When there are mistakes such as mentioned above, it may also include going to court to fix them. It usually includes providing the legal authorizations to distribute financial assets to the named beneficiaries.
Cost. The costs of trust administration could be minimal when the trustee handles the paperwork herself to $10,000 or more when the trust is large and/or the distribution process complicated. The fees for financial, tax and legal advice for more complex trusts can increase the total costs of administration.
Our legal and financial affairs are often not simple and well organized. Administering someone’s trust and distributing their trust assets can be daunting. Being the trustee in charge of distributing one’s trust assets and perhaps also their executor is often an experience that motivates one to take better care of their own legal and financial affairs and make careful choices about who should be their last trustee.
One client recently expressed great relief upon finding out that she did not have to handle all of the trustee tasks for a relative and that in fact an individual professional trustee was going to step in and take care of the bulk of the asset transfer process.
In my experience, the earlier you plan ahead and the more you communicate to your family and beneficiaries about what the responsibilities are and who will handle them, the better off everyone should feel.