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Serving As Trustee of A Trust? Not As Easy As It Looks!

Serving As Trustee of A Trust? Not As Easy As It Looks!


One of the services provided by Legacy Law Center is trust administration.  When a person passes away with a living trust (or other type of trust) in place, the assets in the trust must be administered, i.e. managed and/or distributed according to the terms of the trust document.

Serving as a trustee sounds like a glamorous position.  You’re in charge of money and you have a lot of power over that money, right?  Well, it’s not that simple.  For starters, a trustee is a fiduciary.  A fiduciary is a person who has the power and duty to act on behalf of another person (usually referred to as a “beneficiary”) under circumstances that require total trust, good faith and honesty.   A fiduciary must avoid self-dealing (buying trust property themselves at a discount for example) and must avoid conflict on interests.

Here’s where things get tough for most trustees.  They are in charge of a trust in which they are likely a beneficiary and other family members are beneficiaries as well.  Even in the best of families, one person in charge of significant assets is going to create circumstances in which the trustee’s moves and motives are questioned at every turn.

“Why was Mom and Dad’s home sold and not kept?”

“That accountant the trustee hired is too expensive, they should have used my accountant. “

“The trustee is using trust assets for himself.”

“What happened to Uncle Dave’s fabulous gun collection?  Everything just disappeared.”

Rest assured, in most family trusts, once the assets are in control of the trustee, the worst assumptions and second guessing will begin.  In some families it starts on the day of the funeral.  If the trustee lets things fester, trust litigation can develop.

I’ve seen circumstances where the trustee could not take the emotional toll that the role put on them.  They were desperate for my firm to help.   Hiring a trust attorney to assist in the administration of the trust can create a firewall between the trustee and beneficiary while ensuring the trustee carries out their duties effectively.  For example, in the situation where the beneficiaries are already doubting the moves of the trustee even before they have the assets in their control, the trust attorney can send out a letter stating that the beneficiaries are welcome to contact the firm for updates but that updates will come via letter once they are necessary.  A letter from the attorney outlining the timeline for resolution of the trust is often a good way to set expectations.  When that letter comes from the trustee, second guessing can only worsen.

Our firm does not draft trusts without a no-contest provision which states that any beneficiary who files a lawsuit contesting the trust potentially loses their inheritance for doing so.  Now, there are exceptions to these provisions, but courts will uphold them on the belief that if the grantor of the trust (the creator of it) wanted that provision, they meant for it to be enforced.

Remember this as well:  The trustee in most trust situations does not have to rush through the process of identifying assets and distributing them.  That’s a competing problem for a trustee because working too fast can lead to mistakes and a fiduciary that makes mistakes can be personally liable. 

Ultimately, the best move a trustee can often make is to utilize the provision in the trust allowing them to hire professionals to handle the investing of trust assets (financial advisor), to account for them (CPA) and to deal with the legal issues of the trust (attorney).  Once these professionals are hired, a trustee will often find that the mob puts down their pitchforks, that a path with an end in sight develops and that they handle their duties more effectively and efficiently.

One more thing:  We always remind our trustees that they were chosen for a reason and their crazy brother and angry sister were passed over as trustee for a reason.   You were the one chosen because you were the most dependable.



Trust Administration in Missouri…

Trust Administration in Missouri…


Avoiding probate is one of the best aspects of having a living trust.  Administering a trust after a person dies is much easier and cost effective than the probate process.  That does not mean there are not steps to complete for administering a trust, however.

Here are the 9 steps for administering a trust in Missouri:

  1.  Making an inventory of assets.   All assets held by the trust should be identified, including determining title and ownership of the trust assets.  If some assets are not owned by the trust, a separate probate estate might need to be opened.
  2. Valuing of assets.  The valuation of assets has important income tax, capital gains tax, property tax and estate tax implications.  Depending on the asset, a formal appraisal might be required.  Accounts are easy since statements will provide valuations.
  3. Allocating of assets.  The trust terms will dictate what assets are to be allocated to sub-trusts or to a surviving spouse or both.  Technical considerations must be made to determine where certain assets should be allocated.
  4. Asset retitling.  Each asset must be titled to the proper trust in order to maintain protection from estate taxes, creditor claims and Medicaid.  Our firm can assist in preparing titles and transferring assets quickly.
  5. Obtaining a taxpayer identification number.  Once a trust becomes irrevocable, a taxpayer identification number (a TIN) must be obtained from the IRS.  To do so, a Form SS-4 must be filed.  Caution must be taken to ensure that the trustee will be recognized by the IRS and will recognize and respond to inquiries from the trustee.
  6. Determination of need to file Form 706.  A married couple has generally no estate tax payable upon the first death because of the unlimited marital deduction.  A Form 706 is a federal estate tax return.  Filing this form will establish the value of assets.
  7. Filing of Form 706.  A federal estate tax return must be filed within 9 months of the date of death.  Since Missouri does not have an inheritance tax, there is no need to file a state estate tax return (and there is no such thing).  Our firm has experience in preparing these returns.
  8. Filing of Form 1041.  A Form 1041 is often required to report income taxes.  There are other filings as well, including Notice of Fiduciary Relationship and Request for Discharge of Personal Liability.
  9. Distribution of assets.  Eventually assets will need to be distributed from the trust and will be able to be distributed.  Specific distributions and residual distributions must be carried out.

Keep in mind that in addition to the above, a trustee must also, collect assets of the estate, pay bills of the decedent before their death, during the administration of the trust and bills directly attributable to the passing of the decedent (i.e. funeral bills, medical bills).  Any other directions in the trust must also be carried out.

Trustees ultimately must carry out the terms of the trust as provided in the document.  This can lead to a trustee exposed to liability, potential legal penalties and subjected to litigation.  Trust documents always allow a trustee to obtain legal counsel and a trustee should never attempt to administer a trust without the assistance of an attorney.