FREQUENTLY ASKED QUESTIONS: TRUST ADMINISTRATION
Northwest Iowa Estate Planning Law Firm
A. Trust administration and estate administration are very similar in function. At its most basic, trust administration is the process of following the terms laid out in a trust document. This most often takes place after the death of a person who created a revocable living trust. In that context, trust administration involves winding up the deceased person’s final affairs, but without the requirement of a probate court’s supervision.
However, in certain circumstances trust administration can happen while a trust-maker – called the grantor – is still living. Your needs will depend on your circumstances, but we are able to assist with both types of trust administration.
A. When an individual passes away, the family and friends they leave behind have to take certain steps to wind up that person’s final affairs. This period of transition happens for every individual.
Sometimes, that transition is quite simple, especially if the deceased person’s estate was small. Often, though, the transition requires legal, financial, and practical decisions to be made. For someone who made a will, that process is called probate estate administration or just probate. When there’s a trust in place, those decisions are a part of the trust administration.
A. Just like in probate, trust administration has three main tasks or objectives. First, the trustee collects all of the deceased person’s property and prepares an inventory listing what the deceased person owned on their date of death. Second, the trustee pays the deceased person’s remaining debts, if possible. Third, the trustee distributes any remaining assets to the trust beneficiaries, following the trust’s terms.
A. The trustee is the person who is designated in the trust to complete the trust administration by carrying out the provisions of the trust.
The trustee has a variety of duties – obtain tax ID numbers, collect and forward mail, value the assets, pay creditor claims, and file any necessary tax returns, among others – all of which are based on their obligations as a fiduciary to the trust beneficiaries.
A. A fiduciary is a person who has a duty, imposed by law, to act in someone else’s best interest. For example, a trustee is a fiduciary to the each of the individual beneficiaries of the trust they manage as well as to the group of beneficiaries as a whole.
A. Because there is usually no requirement that a trustee report to a court, trust administration costs considerably less than probate. However, while eliminating court costs and the additional work of filing the various necessary pleadings reduces the cost of the administration, the necessary tasks in trust administration are similar or even identical to many of the tasks involved with probate estate administration.
The attorney fees in a trust administration are usually figured based on the value of the assets in the trust. Because every situation is different, these fees sometimes vary, but the work performed by your trust lawyer usually becomes more complicated as the size of the trust increases and the terms become more complicated. Many law offices account for this increasing complexity by charging hourly fees which means the total cost fluctuates depending on the amount of work you ask the lawyer to do. Our process takes the guesswork out of the fee calculation and lets us give you a solid estimate of cost up front. Remember that the cost of any administration depends on your unique situation, so the actual cost of your trust administration will be determined by Ethan as the attorney handling the work.
A. Absolutely! The Iowa Code allows trustees to be compensated for their work because trust administration can be a complicated and difficult process. However, fees earned as the trustee are taxable income, so we often recommend that a trustee not take the fee that they are entitled to if they are also a beneficiary of the trust.
A. The beneficiaries are the people identified in the trust who will receive the assets once the trust administration is finished.
A. Usually, but not always. In a trust (or a will, for that matter) “heirs” has a special meaning. We usually distinguish between heirs and beneficiaries by using the term “heirs at law.” The easiest way to think about who are your heirs at law is to think about who are your closest blood (or legally adopted) relatives.
Beneficiaries can be any person or entity who is specifically identified as the recipient of a trust distribution. This could include the heirs at law, but it can also include people who aren’t related to the deceased individual or a charity.
A. The absolute minimum amount of time a trust administration will take is sixty days. This is because creditors and other interested parties have up to sixty days to make their claim starting from the date they receive notice that the estate administration has started. In addition, other deadlines and milestones may be required, including filing of estate and inheritance tax returns which are due within 9 months from the date of death. When real estate must be sold, completing the administration can be further delayed. It is not uncommon for a trust administration to take six months or more.
However, on occasion, the creditor claims and taxes due are far less than the total value of the trust estate. When this happens, we sometimes recommend that the trustee make a partial distribution before the administration is finished. These early distributions require additional work by the attorney and the personal representative, but the additional work is often more prudent than allowing the funds to sit idle in a checking account.
A. Deciding whether to start a trust administration is easy: if there is a trust document, a trust administration is probably necessary. You’ll want to make sure you have an experienced trust lawyer review the trust and trust assets with you to confirm whether an administration is necessary.