Trusts are increasingly popular as a way to avoid probate court involvement in the event of incapacity (which might otherwise require conservatorship proceedings) and after death (which might otherwise require probate court estate administration). For these reasons, trusts are often described as “probate avoidance” trusts or “will substitutes.” A main benefit of trusts is that, unlike wills, they are generally administered without probate court involvement. But administering a trust is far from “automatic” or easy, and the complex rules governing trusts are full of traps for the unwary.
Trust administration is relatively simple when the persons who created the trust (the “trustors” or “settlors”) are all alive and still administering the trust (as “trustees”). But upon the death or incapacity of a settlor, the duties of a remaining or successor trustee can be very complicated. These duties — under the trust and state law — are quite serious: a trustee who fails to properly perform their duties can be held personally liable for breach of trust or fiduciary duty.
Successor trustee duties include (but are not limited to) the following:
- Notice to Beneficiaries. If a trust becomes irrevocable in whole or in part at a settlor’s death, the decedent’s heirs and trust beneficiaries must be notified of that fact and given an opportunity to request copies of the trust.
- Accounting. Trust beneficiaries have the right to a proper accounting of the trust, although such an accounting is generally not supervised by a probate court.
- Inventory and Appraisal. An inventory and appraisal is essential for protecting and preserving trust assets, and for properly accounting for and distributing those assets.
- Creating and Administering any Sub-trusts. Many trusts must be split into certain sub-trusts upon a settlor’s death.
- Decedent Income Taxes. Personal returns must be filed for the decedent.
- Fiduciary Income Taxes. If some or all of a trust becomes irrevocable (as is usually the case with a “bypass” or “credit shelter” trust), then the successor trustee must generally file fiduciary income tax returns.
- Estate Taxes. If a taxable estate is worth more than $11.4 million (for deaths in 2019), a federal estate tax return must be filed.
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