The Importance of A Properly Administered Trust
A properly drafted and administered trust is an effective planning tool to help estates avoid going through probate. However, a trust cannot accomplish this goal unless it is administered correctly, ensuring the trustmaker’s wishes are carried out. A properly administered trust requires oversight. There are also costs and expenses associated with trust administration. An Arizona trust attorney advises and guides trustees through this often-confusing process.
While establishing a trust allows beneficiaries access to assets without going through probate, the legal obligation does not end with the creation of the trust. With the passing of the trustor, handling these sometimes-complex legal matters falls on the trustee, who has certain fiduciary duties to both the trust and its beneficiaries, not to mention an obligation to respect the final wishes of the trustor. Fiduciary oversight includes a number of duties, such as complying with state and federal laws, correctly transferring assets to beneficiaries, and preserving trust funds. Using an experienced Arizona trust attorney ensures that trustees fulfill these duties.
What is the Value of the Trust?
To carry out their duties properly, trustees must first ascertain the value on the date of each asset held in trust. This requires an inventory and appraisal of trust assets. One reason for this is to determine the net worth of the decedent, and determine whether federal estate taxes apply. Once the trustee has an accurate inventory of items in the trust, he or she must update the inventory list as items increase or decrease in value.
Notify Beneficiaries
Under Arizona trust law, each trust beneficiary may request copies of the trust document. If the trust became irrevocable upon the trustor’s death, it is the duty of the trustee to provide beneficiaries notice so they have this opportunity. In addition, if the decedent left a will, the trustee may want to file it with the Superior Court in the trustor’s home county. Finally, for each county in which the trustor owned real estate, a notice of death should be sent to the County Assessor’s office.
Paying Estate Tax
In 2016, individual estates valued at $5,450,000 (or $10,900,000 for couples) are subject to federal estate taxes, often referred to as death taxes. Some states also have estate taxes: Arizona does not have a death tax. Filing an estate tax return is the responsibility of the trustee, and he or she enlist professional guidance. Additional tax liabilities include the decedent’s personal income tax return, for which the trustee is also responsible.
Trustee Obligations
According to Arizona trust law, trustees have minimum obligations in fulfilling the trust. Disregarding these duties may lead to repayment of the trust and removal from the trustee position.
- Abide by the trust terms and follow its instructions.
- Act in the best interests of the trust’s beneficiaries.
- Do not show preferential treatment toward any beneficiary.
- Keep personal property and trust property separate, and do not use trust assets for your personal benefit.
- Use caution in investment and administration of trust assets.
- Protect the trust with diversified investing.
- Maintain detailed, accurate records of trust assets, and provide trust beneficiaries with reports of said assets.
Powers of the Trustee
In the interest of preserving the trust, its trustee may exercise certain powers. As long as the trust’s terms do not conflict with Arizona law, the trustee has the authority to carry out each term of the trust. To fulfill its terms, the trustee’s powers include:
- Buying and selling assets
- Buying insurance
- Distribution of payments to beneficiaries
- Making prudent investments
- Maintaining trust property via reasonable repairs
Failure to Properly Administer an Estate
Neglecting trustee duties or failing to administer the estate properly may leave assets unsold for years following the trustor’s death, adversely affecting the trust’s value. The trustee may do this intentionally, such as not selling a home to enjoy a rent-free residence. Trustees also do this accidentally, due to ignorance or inability to fulfill the obligations of the position. In either case, under Arizona probate law, beneficiaries may petition to have the trustee removed for good cause. Once such a petition is filed in court, notice of the pending action must be given to the trustee. With this notice, Arizona probate law forbids any further action for the estate by the trustee, except in the event of routine accounting, preservation of estate assets, and correcting mistakes. The court may decide to remove the trustee for any of the following reasons:
- It is deemed in the best interest of the estate.
- The trustee’s appointment was due to a misrepresentation of facts.
- The trustee has disregarded court orders, not performed his or her duties, or is no longer capable of acting as trustee.
- The trustee disregarded the decedent’s wishes.
Problems arising from failure to administer the estate properly include significant monetary losses due to market fluctuations, such as home values. In Arizona, beneficiaries may legally hold the trustee responsible for such losses. In such cases, the trustee may have to pay relevant attorney fees and court costs. Additionally, A.R.S. Section 14-11001 allows for the following remedies:
- Compel the trustee to perform his or her duties.
- Forbid the trustee from committing breach of trust.
- Compel the trustee to redress a breach via monetary payment, restoration of property, or other means.
- Demand an accounting.
- Appoint a fiduciary to take possession of and administer trust property.
- Suspend the trustee.
- Remove the trustee.
- Reduce or deny trustee compensation.
- Void any trustee act, impose a lien or constructive trust on trust property, or trace and recover wrongfully disposed of trust property and/or its proceeds.
- Order other appropriate relief.
The obligation to administer a trust correctly falls on the successor trustee. Failure to administer a trust properly comes with potentially serious legal and financial consequences. If you have been asked to serve as a trustee, do not take the decision lightly. If you choose to accept the role as trustee, we can explain the risks involved and guide you through each phase of the process. However, if you would rather not serve as trustee, we can also assist you in formally declining or resigning or from this position. Whichever choice you make, we will assist throughout the process so that you and your family can focus on what really matters, which is coming to terms with your loss. Contact us today to discuss your particular situation.