What Does a Trustee Do?
By Liza Hanks
Finch Montgomery Wright
If you have been named as the Trustee of a loved one's living trust, you may not know what to do. Most people don't serve in that capacity more than once or twice in a lifetime. The good news is that much of the time, common sense will get a Trustee through a lot of the territory: it's their job to be fair, not to use the trust's assets for their own benefit and to communicate clearly to the trust's beneficiaries.
And they're not in it alone: a Trustee can, and often should, use trust assets to pay for expert advice. Being a Trustee is an honor, but it carries real liability and is not to be taken lightly. But what's great about trust administration -- it's not subject to court supervision, it can be done privately and with a minimum of administrative inconvenience, is also what can sometimes make it difficult for Trustees. Unlike the executor's job in an estate subject to probate, the Trustee's job is often less structured and organized, because there's no court proceeding to impose deadlines or filings that require organization and clarity. Throughout the entire trust administration process, two sets of rules govern the Trustee's behavior: the terms of the trust document itself and the California Probate Code's rules of fiduciary duty.
If you are struggling with your role as Trustee, here are some guidelines that I hope you find useful. If you want to learn more, I also co-wrote a book, The Trustee's Legal Companion, to provide step-by-step advice to Trustees as they administer trusts.Responsibilities of the Trustee
If you’ve been named as the Trustee of someone’s trust, you don’t have to be an expert in legal or financial matters. You do, however, have a very real responsibility to act with impartiality, honesty and diligence. As a Trustee, you have a fiduciary duty to act with absolute good faith and honesty and to follow the terms of the trust.Find and Manage Trust Assets
It is the responsibility of the Trustee to compile a list of all of the trust's assets, get the date of death values for those assets, and to manage those assets properly until the trust is distributed. If you’re fortunate, the deceased has provided a complete and thorough list of all trust assets. Most Trustees, though, have to do some digging to make sure that they know all of the assets owned by the trust and all of the assets owned by the decedent that are not held in the trust.
Here are the kinds of assets a Trustee must often identify and manage:
- • Real estate
- • Investment accounts
- • Retirement accounts
- • Bank and savings accounts
- • Insurance policies
- • Cars, boats, RVs and other vehicles
Before a trust can be distributed, California's Probate Code requires that notice be sent to all beneficiaries of the trust and all heirs of the decedent, notifying them that the Grantor of the trust has died (that's the person who created the trust) and letting them know who the Trustee is and how to get in touch with them. In addition, under California law, beneficiaries and heirs have a right to a copy of the trust, and this is either sent out with the required statutory notice or the beneficiaries and heirs can request that a copy be sent to them.
In addition to sending out the notices, a Trustee must act as a property manager for the trust. This can include such things as:
- • Terminating leases
- • Notifying credit cards of the death and paying off the balance due
- • Telling banks that the deceased has passed
- • Notifying government agencies, such as the Social Security Administration, Medicare, the Department of Veterans Affairs, and the post office
If the Grantor owned real property in California, certain forms must also be filed with the County assessor, notifying them of the death, getting the successor Trustees on title, and, if appropriate, requesting an exclusion for reassessment of property taxes under Proposition 13.
The Trustee will need set up a trust bank account that will hold money that is owed to the trust and to hold the proceeds of the sale of certain trust assets prior to distribution. The Trustee will also use this trust bank account to pay for continuing expenses, such as mortgage payments, homeowners’ insurance and utility bills. To open it, the Trustee will need to get a tax identification number (EIN) from the IRS for the trust. The Trustee's lawyer or accountant can get this number online from the IRS.
While serving as successor Trustee, it's important to keep good records of money that has been spent and collected during the process of administration. While many families do not require a formal accounting at the end of a trust administration, it still makes sense for the Trustee to be able to account for what happened between the Grantor's death and the distribution of trust assets.Pay Debts and Pay Taxes
The Trustee usually is the person who files a Grantor's last income tax returns, and, if necessary, the Grantor's estate tax return. Technically, tax returns fall into the executor's realm, but if the trust holds the largest assets, as is usually the case, the Trustee would be the one with access to the assets to pay these tax liabilities and so is often what's called, by the IRS, the "responsible party." Sometimes, when a Grantor had gone through a long, slow decline, a Trustee may discover that back taxes are due, and must deal with getting those liabilities covered as well.
In addition, and rather obviously, a Trustee will be the one to pay the last bills of the Grantor, or will work with the executor to pay these bills, which can include caretaker expenses, credit card debt, mortgage payments, and other debts. There are often costs associated with trust administration, too, especially when real property must be emptied out and renovated (or at least staged) for sale. All of these costs of administration can be paid from the trust assets provided that such expenditures are permitted by the trust itself.Distribute the Trust's Assets
After identifying and valuing assets, notifying heirs and beneficiaries, settling debts and paying outstanding taxes, the Trustee can distribute the trust's assets as directed by the trust itself. They need to be careful, however, to keep enough money in the trust to take care of any liabilities or taxes that might come due. If a Trustee distributes assets too quickly, and then an unexpected trust obligation arises, the Trustee will either have to go back to the trust's beneficiaries to collect enough money to pay the debt, or be personally liable for it.
The Trustee usually has discretion to decide how best to distribute assets, deciding for example, whether to sell stock and distribute cash, or distribute stock directly to beneficiaries. I always advise Trustees to discuss these options with the beneficiaries before distributing, since clear communication can go a long way toward reducing conflict and keeping trust administration from veering into mediation or, worse, litigation.
If an estate is well-planned, being a Trustee doesn't have to be a nightmare. If you are serving as Trustee, or anticipate serving as a Trustee and have questions or concerns, please feel free to contact me at email@example.com or call me at 650/327-0088. You can also download my book, The Family's Guide to Wills and Estate Planning, for free.