Trust Administration Basics – Part I
This is the first of a three-part series of articles which gives an overview of the role and responsibilities of the successor trustee when the creator of a trust (the “grantor”) passes away.
Because of the type of person you are — dependable, honest, hardworking and fair, you were designated as the successor trustee in the living trust of a relative or friend. “Trustee” is simply another word for manager. When a grantor creates a trust, generally he or she is also the initial trustee. As the initial trustee, the grantor has full management and control of the assets of the trust. When the grantor is unable to carry out the duty of managing the trust and its assets because of incapacity or death, the person named in the trust as the successor trustee will assume the role of trustee. The primary duty of the successor trustee is to follow the terms of the trust and the law governing the administration of trusts. Trust administration is not difficult, just something most people are not familiar with.
The successor trustee must be able to conduct ordinary business transactions. However, if he or she has business skills or training beyond that of the average person, the successor trustee will be held to a higher standard of care. The grantor can stipulate in the trust that the successor trustee will be paid for his or her work as successor trustee, even if that person is a relative or friend. Most of the time, however, the successor trustee is also one of the beneficiaries named in the trust and the grantor assumes that he or she will act without compensation. By law, the successor trustee must take control of the trust assets and carry out the mandates, provisions and instructions in the trust solely for the benefit of the trust beneficiaries. The successor trustee has the duty to deal impartially with beneficiaries and, if he or she is also a beneficiary, he or she has the duty to avoid conflicts of interest.
One of the first areas of responsibility of the successor trustee is to give “notice” of the death of the grantor and the fact that the successor trustee now has authority over the assets of the trust. This is done by (1) lodging the grantor’s will, if any, with the superior court in which the grantor resided within 30 days of the grantor’s death, (2) sending formal notice to the trust beneficiaries and the grantor’s heirs at law (next of kin) within 60 days of the grantor’s death, and, (3) if real property is involved, filing appropriate documents with the county recorder where the real property is located within 150 days after the grantor’s death.
In an ideal world, the successor trustee will work with an estate planning attorney to guide them through the trust administration process. While there are usually no serious consequences of failure to file the will in a timely fashion, in my practice I frequently see problems that arise because the successor trustee has neglected to give timely notice to the trust beneficiaries and grantor’s heirs. The form of the notice is set by the probate code and must contain (1) the fact of death, (2) the identity of the successor trustee, and (3) a statement of where the trust will be administered. The notice should also contain the precise admonition set forth in the probate code regarding the time limit for challenging the trust (120 days). Providing notice serves the purpose of “putting the cards on the table” so to speak so that everyone involved knows exactly what the grantor’s wishes were. Once interested parties are aware of the existence of the trust and its provisions, the successor trustee can proceed to the next step in the administration process, gathering and managing the trust assets. This will be discussed in the next installment. © 2013 by Marlene S. Cooper. All rights reserved.