Trust Administration - A Basic Overview
Maybe you have been asked by a family member or friend to be the trustee for their trust. Or maybe you agreed to be a trustee and the day has finally come for you to step into your role. Whatever the case may be, the trustee’s job is the key role in administering the trust. Trust administration is the duty of the trustee to manage and distribute trust assets pursuant to the terms of the trust.
What is a Trust?
There are many different types of trusts and trusts can do many things. A commonly used estate planning tool is called a revocable grantor trust. This is a trust that is established during the lifetime of an individual, called the settlor or grantor. The grantor is also the initial trustee and the sole beneficiary of the trust during the grantor’s lifetime. The grantor can also change the trust during his/her lifetime and for the most part, the trust sits in the background until a death occurs. Once the grantor is deceased, a successor trustee takes over and administers the trust. The benefit of this kind of trust is that it helps avoid probate as assets of the grantor pass to the trust upon the grantor’s death. Think of a trust like setting up a small company. It can hold property, have its own bank account, etc.
A trustee’s job is to administer the trust pursuant to the terms of the trust. An important responsibility of the trustee is that the trustee is considered a fiduciary. This means the trustee has a duty of loyalty to the trust beneficiaries and must administer the trust in that manner for their benefit. The trustee should be familiar with Michigan law dealing with trusts, such as the Michigan Trust Code, and should also read and fully understand the trust document.
Administering the Trust
Trusts are as unique as the individuals that established them. For that reason, a trust can be simple or complex. The task of administering the trust will not be the same for everyone. However, there are components of administering the trust that will be common for most trustees.
Before administration, there are some preliminary steps the trustee should take. First, the trustee must accept the job as trustee. The trust will identify the process for acceptance and might require the trustee to take some action such as giving a written acceptance. Once the job has been accepted, the trustee should gather up the important documents of the deceased grantor. The trustee should also receive all the mail of the deceased grantor. This helps to identify and value the assets as well as identify any potential claims against the estate. A trustee should also get an EIN from the IRS before administering the trust.
Another important step is to fully review the trust document to determine the plan of administration and establish who the trust beneficiaries are and what rights they have. The beneficiaries can be anyone such as a spouse, children or a complex chain of children, grandchildren, nieces, nephews, friends, etc. The trustee should ascertain who these individuals are, get contact information, and give notice to the beneficiaries. Under Michigan law, a trustee must give notice to beneficiaries within 63 days of accepting the trusteeship.
Next, if no probate estate will be opened, the trustee should notify creditors of the deceased grantor. A notice should be published notifying creditors that they have four months in which to present their claims. A trustee is also required to give notice to any known creditors.
The trustee must also locate and account for all the trust assets. Again, this might be anywhere from a residence and personal items to many different types of properties or even a business. The process of finding all the assets may not be straightforward. Some investigative work by the trustee might be necessary. The trustee should look at documents, check with family or other professionals to determine what assets are out there. There may even be a case where an asset is titled solely in the name of the deceased grantor and the property will need to go through probate proceedings. The trustee will also need to establish a value for each of the trust assets for distribution and to determine the size of the taxable estate.
The job of a trustee can be overwhelming and for that reason a trustee should reach out to a professional if they need guidance in administering the trust. This article is not a complete list of all the tasks and responsibilities required of a trustee. If you have questions about trust administration, contact Eric M. Froats, Estate Planning attorney, at Cline, Cline & Griffin, P.C.