Trust Administration

A Trust is a legal relationship whereby one person (“Settlor”) transfers property to another person (“Trustee”) to hold for the benefit of another person or persons (“Beneficiary”). Although many people have executed a Living Trust as part of an estate plan, the average person has had little experience dealing with trusts, especially in how they operate after the death of the Settlor.  Most people understand that by putting their property into a Trust, they will avoid Probate.

Both Trust Administration and Probate are legal processes for gathering and assessing the value of the decedent’s assets, paying debts and taxes, and distributing assets to the Beneficiary. In Trust Administration these acts are performed by the Successor Trustee, and in a Probate they are performed by a court appointed Executor or Administrator. The main difference between Trust Administration and Probate is that Trust Administration is usually a private procedure whereas Probate is supervised by the court, and all papers that are filed with the court are a matter of public record. Thus, by executing a Living Trust a person can maintain a sense of privacy with respect to their assets and family members after death.

Because of inexperience, many people harbor several misconceptions about Trust Administration. First, they believe that Probate is a type of death tax that will cost the Beneficiary a lot of money, and that administering a Living Trust will cost next to nothing. Probate fees are set by law and are calculated on the value of the estate. The fees for Trust Administration are usually paid on an hourly basis, and will depend on the amount of time it takes to accomplish the necessary tasks. Depending on the value of the estate, the savings in a Trust Administration can be substantial. In both procedures, fees are paid from the decedent’s assets before distribution is made.

Secondly, they believe that Probate takes a long time but that having a Trust means there is nothing to do after death. While it is true that Trust Administration usually takes less time than Probate, and therefore may cost less, the process of administering the Trust may take longer than the Beneficiary anticipates. With simple Trusts, with simple assets, and a minimal risk of a dispute by a beneficiary, this is very true.  However, in a family Trust, often times when the first spouse dies the Trust is divided into Sub-trusts. Often times, it is imperative to carefully value of the assets for each Sub-Trust in order to obtain the greatest tax savings possible, and to ultimately distribute the assets to the Sub-trusts.

Finally, it is important to understand that Will contests and other litigation may arise through both procedures. Also, a Living Trust will only avoid Probate for the assets that are transferred to the Trust; depending on the value of assets that remain outside the Trust, a Probate for those assets may also be required.

A little time and expense in proper pre-death planning will save the decedent’s estate time and money during post-death administration. More importantly, however, a properly executed Living Trust can provide the entire family the privacy to conduct family business without public scrutiny.