TRUST ADMINISTRATION ATTORNEYS
Trust administration is a necessary process that occurs after the death of either one or both settlors. To protect the successor trustees, there are many things that must be done to ensure proper administration. Fortunately, working with an attorney for trust administration is a straightforward process that will give the successor trustees a great peace of mind throughout the administration.
Partners David Ball and Michael Barry discuss the firm's Estate Planning practice, including Trust Administration.
COLLECTING THE OTHER ASSETS
Obtaining a federal tax identification number (also called an employer identification number) is very easy. With the right information, you can obtain one online from the Internal Revenue Service. If you are working with an attorney on the trust administration, your attorney can obtain the number for you.
Transference of Trust Accounts
What to Do If Not All the Assets Are Placed Into the Trust
To assist you in collecting the assets and transferring them to your name as successor trustee, your attorney will prepare a document known as a Certification of Trust, which will identify you as successor trustee and set forth the scope and extent of your powers. The Certification will also set forth how title to the assets should now be held and will recite the new tax identification number to be used for all trust accounts. You will want to present this Certification to any financial institution holding trust assets in order to have the assets transferred to your name.
Once you have all of the assets identified and under your control, be sure to prepare an inventory of all trust assets and obtain appraisals for trust assets that do not have a readily ascertained value. Assets such as real property should be appraised immediately from the date of death.
Filing Tax Form 706
However, at the death of the surviving spouse or that of a single individual, estate tax becomes a very important issue. Your attorney will work with you to determine which assets are in the trust, which assets are outside of the trust, which assets may need to go through probate and which assets are subject to estate tax. Often, estate assets may need to be sold in order to pay the estate tax liability. Since this may take time, it is essential that you consult with an attorney early on in the administration process regarding any potential estate tax liability, to ensure there is sufficient time to liquidate estate assets in order to pay the estate taxes by the nine month post-death deadline.
Filing Income Tax Returns
A note on income tax consequences: All assets owned by the deceased must be valued as of the date of death. No matter what the value at the time of purchase, most assets (some assets like IRAs, annuities and retirement plans are excluded) receive a “step-up” in basis for tax purposes. For example, a stock is purchased at a price of $10 but has reached $100 at the time of death. If this stock is sold before death, there will be a capital gains tax on the $90 profit. At death, the stock is revalued so that the beneficiary can sell the stock at $100 without incurring any capital gains tax. While it often appears that this higher value may be detrimental from an asset tax perspective, the income tax consequences may make the higher estate tax valuation a better deal for the beneficiary.
Because a successor trustee may be held personally liable for unpaid taxes, you will want to work with your attorney and accountant to make sure that all tax liabilities are satisfied prior to distributing the trust assets to the beneficiaries of the trust.
ACCOUNTING
To satisfy that legal requirement, you must keep detailed accounting records of the trust.
You will need to:
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Keep track of all the trust money you are spending to wind up the decedent’s final affairs
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Keep track of all deposits and disbursements from the trust
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Review the trust document to see what method of accounting is required
Some trust documents expressly require an accounting while others have waived accountings. However, even where a trust document waives an accounting, the law may still require it. So, it is recommended that you consult with an attorney early in the administration process to determine the scope of your accounting obligation. And even where the trust waives the requirement of a formal accounting, you will still want to keep detailed accounting in case the trust administration goes into litigation.
Subtrusts
While the couple is alive, their assets are held in a Joint Trust, owned equally by both parties (except for IRA and retirement funds, which must be in the owner’s name).
After the first death, the trust is split into two or three parts: the Survivor’s Trust, the Family Trust, and, potentially, the Marital Trust. The Survivor’s Trust is generally designed to hold the Surviving Spouse’s assets. The deceased spouse’s assets are generally split between the Family and Marital Trust. The Family Trust, a separate entity, is not counted as part of the surviving spouse’s estate upon death. This trust can pay income to the survivor, and the survivor can also have access to the principal under certain circumstances.
Allocation and Distribution of Trust Assets
This agreement, when properly prepared, recites key components of the trust administration, including, but not limited to:
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Identifying the successor trustees
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Outlining the distribution provisions
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Reciting distributions of personal property already made
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Describing the funding and the values used for determining the distributions to sub-trusts and to the beneficiaries
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Proposing a final distribution plan
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Obtaining consent from beneficiaries for final distribution and waivers of accounting, if appropriate
The purpose of the Agreement is to protect the successor trustee while obtaining an agreement among the beneficiaries for the final distribution of trust assets. Such agreements can be quite helpful in avoiding the threat of future litigation by trust beneficiaries.