What is a Trust Administration?
Estate Planning Attorney Joseph Hudack knows that when a loved one passes away and leaves behind a trust, the process of trust administration must be followed. Many lawyers make trust administration sound straightforward when their client signs the trust document without fully describing what will need to happen upon their death. This is risky because the client frequently does not address trust administration with the chosen Trustee. The individual or individuals who will act as Trustees must comprehend what should happen in the event of the creator of the trust’s death.
What Is the Function of a Successor Trustee?
Over the years, we’ve observed that customers frequently have false expectations about how their trust would function following a death. Clients frequently believe that the trust is complete and that everything will happen “automatically,” or they are unaware that they will require the assistance of an attorney and a CPA to administer the trust. These are widespread misunderstandings.
Families and Trustees must comprehend the administrative obligations and expenses associated with trust administration. One of the most common misunderstandings occurs when a husband and wife establish a joint trust and the trust requirements require the trust to be divided into sub-trusts (most frequently between a Survivor’s Trust and a Bypass Trust).
The most typical reasons for creating this form of trust are to save on inheritance taxes, secure the surviving spouse’s assets, and shield the first to die’s a portion of the estate from divorce and remarriage. What is critical to understand is that by establishing a trust, the individual or couple creating the trust will avoid probate (assuming the trust is properly financed) and the estate plan may result in estate tax savings.
Additionally, probate in California is costly (typically three to five times the cost of trust administration), time-consuming (18-24 months on average), and subject to the prying eyes of the public.
When a trust administration requires the split or allocation of the trust into sub-trusts for beneficiaries, the first step is to establish an “administrative” trust with its own tax identification number. This is to ensure proper accounting. The trust will almost certainly require funds to cover funeral and potentially last sickness expenses for the dead Grantor, as well as bills and other administration costs such as attorney and CPA fees. Typically, the replacement Trustee will establish a new bank account in the “administrative” trust’s name to track all spending.
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