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Trust Administration Checklist for First-Timers - Werner Law Firm

Trust Administration Checklist for First-Timers

Troy Werner and his family

Written by Troy Werner

Troy Werner has been an indispensable asset to The Werner Law Firm since joining in 2009, providing exceptional legal service to its clients.

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POSTED ON: September 23, 2022

A trust's creation, management, and resolution can be very complicated in the trust administration process. Whether you intend to be the future decedent and would like to create a trust to manage certain assets within your estate before and after your death, or whether you have been named as the successor trustee for a loved […]

A trust's creation, management, and resolution can be very complicated in the trust administration process. Whether you intend to be the future decedent and would like to create a trust to manage certain assets within your estate before and after your death, or whether you have been named as the successor trustee for a loved one or friend's trust.

Many roles are involved in the trust administration checklist process, and they can all be incredibly complex. Trusts are not quite like wills. Where a will is a formal, notarized set of instructions left behind for a designated executor to follow during a court-supervised probate process, the execution of a trust is not court-supervised, and a trust functions more like a defined, active legal entity than a static set of instructions.

Trust management is the trustee's responsibility. This responsibility includes overseeing the management and eventual distribution of a trust's assets, the distribution of trust-related income, trust and estate-related tax issues, and much more. A trust document sets the guidelines for the trust. It is a legal entity capable of holding assets "in trust" on behalf of the trust's creator, or grantor, for the trust's enumerated beneficiaries.

The process of managing and ultimately dissolving a trust is called trust administration. Depending on the purpose of a trust, a trustee's duty may extend for multiple years after the grantor's death. Trust administration is a complex process that can be simplified using a trust administration checklist. Here is some of what you should know.

The Basics of Creating a Trust Administration Checklist

First, working with an estate planning professional is highly recommended if you intend to draft a trust agreement and utilize a trust for your estate. An estate planning professional will also be able to guide you through the initial stages of creating a trust (if you are the trust's grantor) or help with the administrative tasks associated with being named a successor trustee (if you are a trustee).

Trusts are not court-supervised, making them faster to manage, administrate, and dissolve. But it also means that you are mainly on your own. An experienced estate planning professional can help ensure that you properly fulfill your duties as a successor trustee. Meaning without incurring penalties for missing deadlines or forgetting specific steps of the administration process.

Trust Administration Checklist

Trust administration consists of the following:

  • Notifying creditors and beneficiaries after the grantor's death.
  • Identifying, accumulating, safeguarding, and managing the trust's assets.
  • Filling out and filing any respective estate planning forms required to fulfill the grantor's plan, including using a pour-over will to roll any assets left outside the trust into the trust before probate begins.
  • Contacting the IRS for an applicable TIN to begin managing the grantor's tax affairs.
  • Administrating the various final returns associated with the grantor's passing, including the estate and gift tax return
  • Discussing and finalizing the distribution of trust income, including preliminary trust income.
  • Overseeing the distribution of the trust's contents, and finally,
  • Dissolving the trust.

The above is an abridged summary of what trust administration usually entails and is neither exhaustive nor comprehensive. Different trusts also call for wildly different tasks throughout the administration process. Some trusts are explicitly written to (legally) avoid or minimize estate taxes, for example. Others are created to provide a restricted monthly allowance to adult beneficiaries who might otherwise squander their inheritance.

Some trusts are built to maintain and manage the family fortune for generations, passing from trustee to trustee. An estate planning professional can help advise grantors during the trust creation process. When the time comes, they effectively convey information and knowledge to the successor trustee. Here's what trust administration can look like.

Meeting With a Professional

The trustee's first job will likely be to meet with the estate planning professional who laid the foundation. Or, an experienced estate planning professional can help them parse their duties as a successor trustee after the grantor's death. Trust administration boils down to the paperwork involved in dissolving trust and laying it to rest (most of the time).

During the initial meeting, a trustee can expect to learn about the trust's scope and contents and their initial duties concerning the various deadlines that must be met immediately upon a grantor's death. For example, when a trust grantor dies, the successor trustee has no more than 60 days to notify applicable beneficiaries. These, in turn, have 120 days to contest the trust. Let us explore some of these deadlines and assorted time-sensitive tasks.

Initial Tasks

The pour-over will is a document that essentially covers items that should've been entered into a trust but weren't due to the grantor's untimely passing. A pour-over will allows a successor trustee to roll the remainder of a grantor's estate into their trust and avoid the probate period. The pour-over will should be filed within 30 days of the grantor's death.

This is especially relevant if there is no other form of will. If the grantor had both a trust and a regular will, they will likely also have an executor. The executor's job is to administrate the will and other parts of the estate. In these cases, the executor and trustee must communicate and divide their respective tasks appropriately, ensuring their checklists do not interfere.

Suppose a grantor's trust is their only or primary form of estate planning. In that case, the trustee must use a pour-over will to ensure that no assets are distributed via state-specific intestacy laws. The executor must also notify beneficiaries relatively close to the grantor's death.

Tax Considerations

A successor trustee must contact the IRS and apply for a taxpayer identification number if they administrate the grantor's final tax affairs. To that end, they will need to file Forms 706 and 709, the final income tax return (if the grantor filed as an individual), and any relevant state tax returns, usually before the next Tax Day (April 15th most years).

For any property titled to the trustee to transfer assets to respective beneficiaries, the trustee will also need to file a Preliminary Change of Ownership Statement with the respective state agency. Tax considerations maintain relevance in cases where a trust is expected to pay out an income to its beneficiaries before being dissolved.

In addition to state estate taxes, some states also charge an inheritance tax (there is no federal inheritance tax). Income paid out to beneficiaries also counts as income earned, meaning that your heirs must pay income taxes. If they rely on their current income threshold to receive government assistance, that is a separate consideration before making distributions.

Much, Much More

A trustee's job can range from surface-level administration to minute financial and tax-related tasks. This includes managing investments, canceling credit cards, working with CPAs to review the grantor's financials, communicating with out-of-state legal counsel for ancillary probate proceedings (for assets held in other states), working with immigration and estate planning experts for the benefits of a noncitizen spouse, and more.

If you feel overwhelmed, don't worry – trusts are complex, and managing an estate is no small task. Consider working with us to set up and administrate your estate and eliminate potential problems.

Trust Administration Checklist for First-Timers - Werner Law Firm

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