Trust Administration Lawyer in Oakland County
“Trust Administration” generally refers to the process of carrying out the terms of a written trust document. If you set up a trust during your lifetime (i.e., a so-called Living Trust), the trust administration process begins as soon as you sign your trust. If you set up a trust within your will (i.e., a so-called Testamentary Trust), the trust administration process begins immediately after your death. The trustee is responsible for properly administering your trust.
What Is a Living Trust?
Essentially, living trusts serve as containers for property. There are two different kinds:
These trusts can serve the same sort of purposes but operate according to different rules.
Understanding the Difference Between Revocable and Irrevocable Living Trusts
In the simplest possible terms, an irrevocable living trust cannot be modified while a revocable trust can. To modify an irrevocable trust you need the permission of the beneficiary, not the trustee or the individual who set up the trust (the grantor). Revocable living trusts can be modified by the grantor at any time.
Irrevocable trusts cannot be modified, but they do come with certain advantages that are trade-offs for that restriction. One of the largest advantages is that once in an irrevocable trust, the assets are no longer in your name or part of your estate. This is not true of revocable living trusts. In other words, creditors or those who have secured a judgment against you in a lawsuit can come after those assets as part of the settlement. These assets wouldn’t be touchable in this case. They can also be used to move assets out of state.
In cases where you’ve assigned a beneficiary for the purposes of estate planning, the assets would not be taxed as part of your income. They would, however, be taxed on their way out of the trust when the assets are disbursed to the trust’s beneficiary. Additionally, since assets in a revocable living trust are considered part of the grantor’s estate, those assets are considered for the purposes of levying the estate tax. In cases where an estate is close to the estate tax threshold, assets held in a revocable trust might push them over the limit.
However, this is not true of an irrevocable living trust. Since the assets held in the trust are not considered a part of the estate, they would not be considered as part of the estate for assessing the estate tax.
Revocable vs. Irrevocable Living Trusts for Estate Planning
As we discussed earlier, irrevocable living trusts are useful because the assets held in that trust are not considered part of your overall estate and thus not subject to capital gains or estate tax. However, they cannot be modified by the grantor (who set up the trust) at any time until the lifetime of the trust has expired. While the lifetime of the trust need not be the grantor’s entire life, for estate planning purposes, it generally will be.
Meanwhile, revocable living trusts are useful insofar as they can avoid probate. For those without major tax issues, a revocable living trust is an excellent option. The trusts disburse assets held within the trust directly to heirs. While they are still exposed to creditors, it is much more difficult for a creditor to access funds disbursed by the trust and nearly impossible after those funds have been disbursed.
A creditor or the winner of a settlement in a lawsuit would be required to sue the trust directly which is more costly, more difficult, and requires better timing than the day after the grantor dies.
If, however, the deceased allows their property to pass through probate, the first thing that the probate court will do is contact all of the deceased’s creditors and ensure that their debts are settled before their heirs get a dime of inheritance. While paying off your debts is a virtue, you also want to ensure that your creditors don’t get first dibs on sentimental items and that your family members are cared for when you pass. Having a revocable living trust disburse important items give you more control over the situation than probate would allow.
One of the other major upsides of a revocable living trust is that it allows the trustee (who is usually an estate planning attorney) to take control of the trust if you become incapacitated. This establishes a clear transition of power over your assets and does so in a much more specific fashion than establishing a financial power of attorney.
Trust Administration During the Trust-Maker’s Life
Unlike a will, a trust should not be put in your safe-deposit box and forgotten. You should take time to learn how to properly maintain or administer your trust. If you do not properly administer your trust during your lifetime, your family will likely be confronted with a greater burden upon your death, and perhaps even financial harm.
Alternatively, you can have an attorney set up your trust for you and then transfer assets into the trust to be distributed to your heirs upon your passing.
Trust Administration After the Trust-Maker’s Death
Contrary to what many people think, even though probate might not be required because of the existence of a fully funded trust, that doesn’t mean that there are no steps required for proper trust administration after the trust-maker’s death. Indeed, as I point out in my published article in the Journal of Taxation of Investments, post-death trust administration is a lot like probate without court involvement.
Here are some of the steps involved in proper trust administration after the trust-maker’s death:
- securing the original trust document(s) and providing copies to the beneficiaries and other interested parties;
- gathering all of the trust-maker’s assets and properly investing the assets during the period of trust administration;
- determining whether a legal notice to potential, unknown creditors should be published in a newspaper;
- paying the final debts of the trust-maker;
- keeping beneficiaries informed as to the process of trust administration, including an estimated time period for completion of trust administration;
- obtaining a tax identification number for the trust;
- filing the trust-maker’s final personal income tax return (Form 1040) and a tax return for the trust (Form 1041);
- filing state and federal estate tax returns for the trust estate;
- preparing a complete trust inventory and accounting; and
- making distributions of trust assets pursuant to the distribution provisions of the trust, and obtaining signed and dated Receipts on Distribution from each beneficiary.
It is very important that a trust be properly administered. If a trust is not properly administered, the beneficiaries of the trust may be harmed. You should only work with an attorney who has a dedicated focus on trust administration.
Talk to a Trust Administration Lawyer Today
Trust administration is not a simple process and a poorly administered trust can result in serious consequences after you pass. These consequences can make it more difficult for your family members to inherit your assets according to your wishes and may void the trust entirely. The reliable trust administration attorneys at Sumner & Associates, P.C. will ensure that your trust is created properly and meets your individual estate planning needs. We will sit down and work out an estate plan that addresses your unique concerns and execute that plan in a manner that you can feel safe about. Contact us today.