How to Prepare for a Trust Administration: What New Trustees Need to Know

Being named as a successor trustee can feel very different once the time comes to actually serve. A trustee may need to locate assets, communicate with beneficiaries, pay expenses, maintain records, address tax matters, and eventually distribute trust property. In California, trustees also have legal duties that affect how the trust must be administered.

If you have recently become responsible for a trust, getting organized early can make the process easier and help prevent problems later.

Start With the Trust Documents

One of the first steps is to locate and review the complete trust agreement, including any amendments. The trust document provides the instructions you are expected to follow. It may identify the beneficiaries, explain how assets should be distributed, and describe the powers given to the trustee.

Avoid making assumptions based on previous conversations with the person who created the trust. The written terms of the trust are what govern the administration.

Identify and Protect Trust Assets

Next, determine what property is actually owned by the trust. That could include bank and investment accounts, real estate, business interests, vehicles, and other property. Deeds, account statements, tax returns, insurance records, and other documents may help identify those assets.

Once trust property has been identified, it may need immediate attention. A vacant home may need to be secured and insured. Bills may need to continue being paid, and financial accounts or valuable personal property may also need to be protected. It is also important to distinguish trust property from assets that transfer in another way, since not everything the person owned is necessarily part of the trust.

Know That Deadlines May Apply

Trust administration can involve important deadlines and notice requirements, some of which may arise early in the process. Depending on the circumstances, a trustee may need to notify beneficiaries or other interested parties and provide certain information about the trust.

Because the requirements can vary, a new trustee should identify any applicable deadlines before moving too far into the administration. Getting guidance early can help make sure required notices and other initial steps are handled properly.

Keep Good Records From the Beginning

Trustees should establish a reliable recordkeeping system as soon as possible. Keep account statements, receipts, invoices, tax documents, correspondence, and records of money received or spent on behalf of the trust. Trust funds should also remain separate from the trustee’s personal funds.

Good records are especially important because California trustees have a duty to keep beneficiaries reasonably informed about the trust and its administration. Trying to reconstruct financial activity months later can be difficult, so keeping organized records from the beginning can make the trustee’s job much easier.

Do Not Rush to Make Distributions

Beneficiaries may naturally want to know when they will receive their inheritance, and a trustee may also be eager to complete the process. However, distributions should not be made before the trustee understands the trust’s remaining obligations.

There may be debts, taxes, administrative expenses, property issues, or other matters that need to be resolved first. The trustee may also need to retain enough money to cover expenses that have not yet been paid. Distributing assets too early can create problems if the trust later needs funds that are no longer available.

Remember That Serving as Trustee Is a Legal Responsibility

A trustee is a fiduciary. That means the trustee has legal obligations to administer the trust according to its terms and act in the interests of the beneficiaries. Even well-intentioned decisions can cause problems if they conflict with the trust or the trustee’s legal responsibilities.

New trustees do not have to figure out every part of the process on their own. Legal, tax, accounting, real estate, or other professional assistance may be appropriate depending on the trust and the assets involved.

If you have recently become responsible for administering a California trust, the Estate Planning Law Office of Jonathon L. Petty, Inc. can help you understand your responsibilities and determine what needs to happen next. Call our office at 559-374-2223 or reach out through our website to discuss the trust administration process.