Essential Steps for Trust Administration – A Comprehensive Checklist
Several formal trust administration requirements must be followed. If you work with a professional trustee, they can also assist you in following any informal instructions in the trust document or by New York law.
In addition, they can help you gather all assets and records, including deeds, account statements, life insurance proceeds, vehicle titles, and descriptions, to prepare for the following tasks:
Review the Documents
Based on the trust administration checklist in California, a trust administrator’s first step should be to review the trust documents. This will give the Trustee a complete picture of the assets and what will happen to them. Typically, this will involve locating the original estate plan, the decedent’s death certificate, and any other important documents related to the trust.
Often, the settlor provides a specific allocation formula for income and principal to different classes of beneficiaries in the trust document. These will help the Trustee ensure that all income and principal payments are accounted for correctly.
This will also be a good time for the Trustee to determine whether any beneficiaries are owed a debt from the settlor and, if so, what that debt is. Getting this information in order early will protect the Trustee from being sued or penalized by creditors. It is often a good idea for the Trustee to contact a vetted Trust and Probate attorney before proceeding further to obtain proper guidance.
Gather All Assets
No two trusts are identical, and the administration of each is unique. However, trustees should follow many common steps during a trust administration.
Start by gathering all assets and liabilities. Obtain copies of the decedent’s final tax return, investment statements, life insurance policies, bank accounts, and deeds for all property the trust owns.
If the trust includes real estate, consider having the property appraised to determine its value at the time of death. This will be necessary for calculating estate taxes. It also helps determine how the trust’s assets should be distributed.
Also, review all outstanding debts and expenses. The Trustee must pay these liabilities before distributing any trust assets. Finally, prepare an inventory and value all the help the trust holds. This will be needed to file state and federal tax forms, pay any taxes owed, and provide beneficiaries with detailed accountings of the trust’s income and expenses. Lastly, make distributions according to the terms of the faith. If you receive receipts for distributions, save them as evidence of distribution in case a beneficiary files a claim against the trust later.
Gather All Obligations
Trust administration processes will differ, and each Trustee must carefully follow the instructions outlined in the trust agreement. However, several common steps can help streamline the process and make it seamless.
This includes identifying and managing all assets. It often involves opening a new bank account, obtaining a tax identification number (TIN), and getting an accurate picture of all purchases in the trust. This may also include obtaining appraisals, reasonably investing the trust’s assets, and keeping records of all investments and distributions.
Ultimately, a trustee must also pay any outstanding debts, including taxes. Failure to do so can open the Trustee up to liability. It is recommended that a trustee speaks with an experienced estate planning attorney about how to handle these obligations best.
Choosing a professional trustee can help make this process smoother. Unlike family members, these individuals are not tied to familial dynamics and can objectively administer the trust following the grantor’s wishes.
Prepare a Binder
Keeping track of the trust’s legal documents and records will help with administration. Typically, this includes setting up a binder and creating a spreadsheet. Having this information organized makes the process smoother and quicker for all parties involved, including beneficiaries.
This includes obtaining copies of deeds, account statements, life insurance benefits, vehicle titles, investment accounts, and other relevant records. Taking an initial inventory will also be helpful, as will the identification and valuation of assets. This will likely involve meeting with an attorney, accountant, and financial advisor to understand the Trustee’s duties and responsibilities.
Completing all required tax forms and paying any taxes owed is essential as a final step. This will include estate and transfer taxes and any other applicable taxes for the trust and its beneficiaries. Trustees may need to provide notices to beneficiaries as well.
Trust administration involves much more than merely gathering assets and paying obligations. Depending on the specific trust, trustees may have to manage real property and business assets professionally, obtain necessary appraisals for investments that cannot be readily valued, contact the IRS for an applicable tax ID, and send accounting information to beneficiaries (either by way of quarterly statements or annual letters).
In addition to meeting all legal duties, a Trustee must communicate with beneficiaries and keep detailed records to prevent misunderstandings later. As a result, any trustee needs to set up systems that make it easy to locate any documents they need quickly in the future, regardless of where they are located.
Once all obligations have been paid, the Trustee can distribute assets to beneficiaries by the terms of the trust. This process can include formally transferring the ownership title of distributed assets via a recorded deed for real estate or opening new accounts to transfer investments and liquid assets. In either case, receipts of any distribution should be compiled to document that all beneficiaries have received their inheritance.
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