What are My Duties and Responsibilities as Trustee?
Here are a Trustee’s Duties and Responsibilities
If you have been named as a Trustee, someone else has decided that you are the person they most trust to manage the financial affairs of their Trust. What is a Trustee and what are your duties and responsibilities? The simple answer is that you are responsible for complying with the terms of the Trust pursuant to the California Probate Code. The problem is the Trust does not go through all of your responsibilities as Trustee. Most of the time, the Trust will provide how the Trust is to be distributed, but there are several actions you must take before you even begin to distribute assets. The purpose of this article is to provide non-professional trustees with some guidance and common pitfalls. As they say, “you don’t know, what you don’t know.
What is a Trustee?
A trustee is the person or entity responsible for fulfilling the terms of the Trust. A trustee may be a family member, a friend, a professional fiduciary or a corporate trustee. The trustee will hold legal title (as opposed to equitable title) to assets until the assets are distributed.
What Do I Need to Do First as Trustee?
The first thing you should do if you are named as the successor Trustee is to see an attorney that is a Certified Specialist in Trust Administration by the California State Bar. Going at it alone is a recipe for future problems. The second thing to do is gather as much information as possible about the decedent.
- Do you have the most recent estate planning documents? People often update their estate plan throughout their lifetime. Do you have a copy of the death certificate?
- What are the assets that belong to the Trust? What assets pass outside of the Trust?
- What bills need to be paid immediately to eliminate the loss of valuable assets (e.g. mortgage payments on a home)?
- What assets require special attention? e.g. ongoing business, retirement accounts, etc.
What Information Do I Need to Give to Beneficiaries?
As soon as you become Trustee, beneficiaries will begin to ask you questions. When will I get my money? If you give the beneficiaries a definitive answer, you are likely to fail. If you give them a nondefinitive answer, the beneficiaries are likely to think you are hiding something. Even as an experienced attorney that has handled thousands of trust administrations, I do not always know when the Trustee will be in a position to make distributions. You should not put yourself in that position.
However, even though you may not have all of the information beneficiaries want, there is certain information that you are required to give beneficiaries. Typically, the first opportunity to breach your duties as Trustee is failing to provide a “Notification by Trustee” to the beneficiaries pursuant to California Probate Code section 16061.7. The Notification by Trustee must be mailed to the beneficiaries within 60 days of death. Not a whole lot of time to figure things out! Failing to timely mail the Notification by Trustee could subject you to personal monetary damages.
Another common question the beneficiaries will ask: What is in the Trust? Often times you will not know what is in the Trust and what isn’t. And frankly, this is not something that is easily determined. Even if assets are not in the name of the Trust, they may still be Trust assets, and vice versa. However, once beneficiaries request information regarding the Trust assets, you are obligated to provide them with certain information and within a certain period of time depending upon the Trust. Often times, you may be required to provide beneficiaries with financial information in as little as 60 days. Again, failing to provide the requested information may be a breach of your duty as Trustee and therefore subject to monetary damages.
How Do I Gain Control of Trust Assets?
You can’t give beneficiaries what you don’t have. Until you have gained access and control to the Trust assets, it will be impossible for you to provide the beneficiaries with the requested financial information. For this reason, and many others, it is imperative to gain access to the Trust assets as soon as possible. How you do that depends upon the type of asset and how it is titled. I could write an entire article on this subject, but for purposes of this overview, we will break assets into two categories: 1) assets titled in the Trust; and 2) assets not titled in the Trust. If the assets are titled in the Trust, then typically a death certificate, a trust certification and a copy of the Trust will be needed to transfer the assets to you as Trustee. The process is different and more complicated for real estate. For assets not in the name of the Trust, you need to figure out if the Trust should be the owner and if so, what vehicle you will use to transfer it to the Trust post-death. A Heggstad is one solution. A small estate affidavit or a formal probate are other solutions. The proper vehicle is completely fact dependent.
Do I Need to Pay Creditors?
Sometimes yes. Sometimes no. If the debt is a mortgage payment and you fail to pay the mortgage, the lender is likely to foreclose on the real estate. Other debts such as medical bills may be paid by the Trustee, or you could require them to make a formal creditor’s claim within a probate. Forcing a probate may cost the Trust more money. Most creditors have one year to file a claim. IRS is excluded from the one-year limitation.
When Do I Need to Pay the Beneficiaries?
Once you have collected all of the assets, paid all taxes, debts and liabilities, it may be time to distribute the assets. Is there a deadline? Not unless the Trust requires it. Is there a point in time where you will be considered in breach of your duties as Trustee if you do not make a distribution? Absolutely. But before you make distributions, you may want to ensure that the beneficiaries cannot come after you later for your actions as Trustee. In order to limit liability, you may want to prepare a formal trust accounting. This trust accounting may be filed with the Court if you want to cut-off potential liability as soon as possible.
Can I be Sued or Get in Trouble as a Trustee?
If you’ve read this far, then you already know the answer is yes. The liability could come from your share of the Trust or could come from your personal assets depending upon the breaches.
John Wong advises on all aspects of estate planning, probate, asset protection and trust administration. He believes that estate planning is about planning for life; while having protections in place should the unexpected occur.
