Trust Administration
When a person dies and they own property in a trust (often called a “Revocable Living Trust” or “Family Trust”), the Successor Trustee named in the Trust is responsible for collecting and distributing the property to the rightful beneficiaries.
Although court involvement is not usually required, we can help Trustees with the legal steps they must take to collect, account, and distribute the property, as well as document the process to prove it happened as required by the Trust. Especially when there are many beneficiaries, strained relationships, or complicated properties, Trustees often want to hire a lawyer to handle these steps.
What to Expect
Trust administration has four main steps:
1. Collect, secure, and inventory the property.
Trust property can be many things, like houses, bank accounts, and insurance policies. It is the Trustee’s job to collect all of the property in one place and secure it (including removing unlawful tenants from a house and selling it), so that a complete list of all the property can be made and a value assigned as of the date of death.
2. Prepare an accounting.
An accounting is important to show the beneficiaries what the total value of the Trust was at the time of death, the expenses of the trust (like funeral costs and real estate commissions), and the income earned (such as from rental properties or stocks). The remaining amount is used to calculate taxes and debts due before distributions are made.
3. File tax returns and pay debts.
Trusts require special tax returns and sometimes, to pay some of the Decedent’s debts. Once these steps are complete, then the Trust can be distributed.
4. Distribute property to beneficiaries.
The beneficiaries will approve the accounting and sign receipts for their share of the Trust estate. Then the Trustee will be released from his or her duties and the matter is closed.
FAQs
How long does trust administration take?
The time can vary. In a simple estate in which everyone is friendly with each other, a Trust that holds a house and a bank account can be resolved in three to four months, maybe a little longer if the Trustee decides to sell the house. If the family is fighting with each other, or if someone is living in the house and refuses to leave, the process can take as much as a year or more.
Does the trustee receive payment for his or her work?
Usually yes, unless the Trust Agreement prohibits the Trustee from receiving payment for his or her work. State law sets a percentage fee for the Trustee if the Trust does not specify the amount of payment. This is 4% of the first $100,000, 3% of the second $100,000, and 2% thereafter. In addition, if the Trustee does additional work such as cleaning out the house instead of hiring a service to do it, the Trustee can be paid a fair market rate for the time expended. The Trustee is also entitled to reimbursement for out of pocket expenses, such as if he or she made mortgage payments after the Decedent died and before the house was sold.
Does the trustee decide who gets trust property?
No, the Trustee does not decide who gets the trust property. This was already decided by the person who died, and the written instructions are in the Trust Agreement. If the Trustee does not abide by these instructions, the Trustee can be sued personally.
Are inheritances from a trust taxed?
Sometimes. When a person dies, their property has a dollar value. If the trust administration takes a long time, the property may increase in value. The difference between the value on the date of death and the distribution date may be taxable if the increase in value is more than the cost of the trust administration. Also, certain states have inheritance taxes (Nevada is not one). Also, if trust property exceeds the federal limit for taxes (currently $11 million for individuals), federal estate tax could be due.
What if the trustee does something wrong?
If the Trustee fails to act, overpays himself or herself, or refuses to distribute the trust property to the rightful beneficiaries, the beneficiaries can sue the Trustee. The Court will require the Trustee to account, and if the Court finds that the Trustee did something wrong, the Court may also remove the Trustee and can issue financial penalties.
FEES
We charge hourly for trust administration but we do establish a budget with the Trustee before we start.
The hourly fee is $300 per hour.
We get paid from the Trust property, so no fee is due upfront except in rare cases (usually when we expect a fight among the beneficiaries).
Usually trust administration is around $1,500 minimum, up to about 1% of the value of the estate.