What Is Trust Administration? Trust administration is the process by which a trust is processed following the death of the settlor, or creator of the trust, to comply with the terms of the trust. Administration must occur when there is a death of a settlor of a trust, even if a trust has two settlors.

Why Is Any Administration Required With a Trust? A common misconception is that by having a living trust, no administration is required. It is true that, absent problems described below, the administration of a trust will typically avoid a court probate proceeding. However, that does not mean that an administration is not required. In fact, a typical trust must be processed in much the same way a probate estate is processed through the court. It just avoids court involvement, in most cases.

Is Court Action Required? Trusts are generally drafted and designed to avoid the necessity of having a court administer the trust after the settlor's death. Occasionally, however, there are instances where a trust is ambiguous, needs some type of clarification or modification, or where the trustee desires court approval of actions taken in the administration. In those situations, a trust administration matter can find its way to court. The advisability of seeking court approval is best determined after reviewing the particular circumstances of the trust involved with a professional well versed in trust administration matters.

What Steps Are Required in a Trust Administration? The role of the trustee of the trust is to marshal and inventory all assets of the trust. This process necessarily involves determining whether there were assets outside the trust which were supposed to be inside the trust. Once the inventory is complete, valuations for all assets must be obtained. Valuations are used to determine whether federal and California estate tax returns will need to be filed. Tax issues are varied and complex, and are best addressed after reviewing the specific situation by a knowledgeable attorney.

All final debts and expenses of the settlor (decedent) will need to be paid. For this purpose, the trustee must coordinate with the settlor's probate estate (if there is one) for payment of these expenses. Formal notice may also be given to creditors if circumstances warrant. The trustee should consult with an attorney to determine if notice is recommended.

The trustee must communicate with the beneficiaries of the trust and with the settlor's heirs at law regarding the trust. California law requires that the beneficiaries and heirs receive notice regarding the existence of the trust, and all beneficiaries are entitled to be kept apprized of the administration process. In addition, the trustee must provide annual accountings to the beneficiaries of the financial activity of the trust, unless the trust provides otherwise.

The trustee is also required to distribute the assets of the trust according to the terms of the trust. This may involve transferring the assets outright to the named beneficiaries, or may involve holding the assets for some time, even for a beneficiary's entire lifetime, for that beneficiary's use. The distribution provisions of a trust are as varied as the settlors who create them. Should the distribution provisions be ambiguous or unclear to the trustee who is administering the trust, it is always advisable for that trustee to consult with a knowledgeable trust administration attorney to guide him/her through the particular terms of the trust in question.

What If the Trust Was Not Funded? A trust should be funded by the settlor of the trust when the trust is created through the transfer of title of the settlor's assets to the trust. In cases where the settlor neglected to transfer title of his/her assets or where title to an asset was inadvertently not transferred to the trust, the trustee, following the settlor's death, will need to arrange for transfer of the assets to the trust if possible. There are different methods, depending on the circumstances, to obtain the transfer of those assets to the trust, including declarations and court orders.

Surviving Spouse/Settlors Do Not Have to Administer Their Trust, Right? A myth propagated by high pressure trust mills is that a surviving spouse will not have any administration following the death of his/her spouse/co-settlor. The truth is that most joint trusts split into sub-trusts on the death of the first spouse and must be funded with assets of the trust. The division into sub-trusts is a very complex process which takes into account estate tax, income tax, valuation, and personal considerations. To obtain the best funding result, a surviving settlor should consult with his/her attorney, CPA, and financial advisor.

How Long Does Trust Administration Take? It varies. For a single settlor trust with only one beneficiary, the administration process can be completed in a few months. For a more complex trust, or for trusts with litigious beneficiaries, the administration process can take as long as, or longer than, the probate proceeding process. However, the trust administration process can be expedited by a knowledgeable attorney, who can guide the trustee on the steps to take to conclude the administration as quickly as possible.