Trust Administration

Trusts can accomplish a wide range of planning goals. Many people, however, assume that once they have created a trust, and funded it, the trust will simply go into effect automatically when the person who made the trust passes away. This is not the case. Trusts must be properly administered for them to work the way they were intended.

You should know that failing to administer a trust properly can have serious financial and legal consequences for the trustee and beneficiaries. Have you been asked to serve as a trustee? If so, we can explain the process to you, together with the potential risks for improperly administering the trust. If you want to serve as trustee, we can guide you every step of the way. If you would rather not serve in this capacity, we can help you resign or decline to serve, and help select the ideal person or institution to do so if you have authority to name a successor.

5 crucial steps in Arizona trust administration

Trusts are often seen as the ultimate estate-planning solution, as they are a good way to get your financial affairs in order. However, creating a trust is not just a “set it and forget it” situation because trust funding and administration requires time, as well as associated fees.

Although this process is easier than a probate process, you should still seek the assistance of an experienced Arizona trust attorney, as trustees are required to fulfill multiple fiduciary duties when administering the trust.

These duties include compliance with federal law and Arizona state law, preserving trust funds, and ensuring the transfer of assets to beneficiaries of the trust occurs according to the trust’s terms. Trust administration can sometimes be time consuming and complex, so the best idea is to hire the services of an Arizona attorney with experience in this field.

Consider the steps you need to take for proper trust administration.

1. Learn the Value of the Trust’s Assets

In some instances, things are a bit easier because the trust document provides details relating to trust assets. You must still determine values of these assets at the time of death.  However, when these values are not readily available, it is your responsibility to investigate and come up with an accurate appraisal because the net worth of the decedent determines if the estate is subject to federal estate tax.

To begin, create an inventory to document trust assets, including values of these assets at the time of death. You may also need to track any increases or decreases in these values during the course of administration.

2. Pay the Taxes

Although current tax law is very generous, the tax law sunsets at the end of 2025 and snaps back to much lower levels. Attorneys and accountants can guide you through the current tax laws and filings that need submitted.

One of the most common ways to avoid estate taxes is through the use of exemption trusts. But certain tax filings must also occur to preserve a second step-up in basis and trustees must be extremely careful when it comes to making particular transfers to avoid additional income or capital gains taxes.

Failure to comply with stringent federal guidelines means you could inadvertently increase the tax obligations of the estate by a large sum.

Other tax matters that trustees must handle include filing the tax returns of the estate and the decedent. An experienced Arizona trust attorney can help you prepare the trust and avoid costly errors.

3. Provide Beneficiaries with the Right Notices

According to Arizona trust law, anyone who could possibly benefit from the trust can ask for copies of the trust document, and trustees are required to provide notice of this right. If the trust becomes irrevocable when the trustor dies, you must give notice to every beneficiary.

4. Fulfillment of Duties

As a trustee in Arizona, you are obligated to perform certain duties. If you fail to meet these obligations, you could lose your trustee status and be forced to repay the trust for damages. Here are some of the most basic duties:

• Follow the trust’s instructions and abide by its terms
• Act in the best interests of the beneficiaries
• Invest trust assets sensibly and cautiously
• Protect the trust through diversification of investments
• Treat each beneficiary equally with no bias
• Never use the assets of the trust for personal benefit
• Ensure trust property remains separate from personal property
• Keep detailed records and provide beneficiaries with reports

5. Be Aware of Your Powers

In Arizona, trustees possess certain powers that must be used in the best interests of the trust. Typically, you have the power to carry out every term of the trust unless it contravenes state law. Here are some of your powers as trustee:

• Investing on behalf of the trust
• Purchase and sale of assets
• Buying insurance
• Reasonable repairs to trust property
• Issuing payments to beneficiaries

If you have been named as successor trustee and need guidance when it comes to administration, get in touch with an experienced Arizona trust attorney today.