The original grantor (creator) of a revocable trust will usually serve as the trustee of the trust until their disability or death. Upon the grantor’s death, an “administrative trustee” serves to perform all of the necessary functions. This office may also be referred to as a “successor trustee.”
Just because you are named as the administrative trustee in your loved one’s trust does not necessarily mean that you must serve. Before acting in this capacity, understand that the role, like that of a personal representative, is a fiduciary one—meaning that you have a duty to act impartially in administering the trust.
Like the personal representative of a probate estate, the trustee of a trust is a fiduciary. He or she has a duty to act impartially for all interested parties of the trust, including the decedent’s creditors, as well as the trust beneficiaries.
The trustee of the trust is often a spouse, child, or other family member who is also a beneficiary of the trust. The trustee would have a conflict of interest and should be careful to work with their attorney to ensure that they don’t act in their own beneficial self-interest. Usually this is accomplished just fine and without problem.
When acting as the administrative trustee, you will be interacting with the trust’s professional team, including the attorney, CPA, and financial advisor.
Similar to a probate, the trustee’s first course of action would be to provide the attorney the trust’s current asset information. The original trust is not filed with any court, although the will may be deposited.
If there already isn’t a trust checking account with the administrative trustee named as the account holder, a trust checking account will be opened to pay the deceased’s bills.
During the administration of the trust, the trustee must follow the prudent investor rules to preserve and protect the trust assets. If the value of the trust assets should plunge under the trustee’s watch as a direct consequence of the trustee’s failure to follow the prudent investor rules, then the trustee can be held individually liable to the beneficiaries for the amount of such loss.
One of the significant differences between a trust administration and a probate administration is the trustee’s ability to clear creditors. The trustee has the same responsibility to pay off any debts and obligations of the decedent, but there isn’t any formal notice procedure available.
The trustee should discuss his risk tolerance with the attorney, as well as his knowledge of the decedent’s affairs. If the trustee wants to play it safe, he will direct the attorney to open an empty probate. Without opening a probate estate, creditors have two years from the date of the decedent’s death to file a claim against the trust. The trustee is well advised to retain funds for potential claims during this time period when no empty probate is opened. Failure to clear the creditors could result in the trustee coming out of pocket to pay those creditors if he has made full distribution and has no trust assets available to satisfy a valid claim.
Another creditor question relates to invoices or bills in dispute. The probate court provides a venue to object to an incorrect or disputed bill. In a trust administration, there is no such venue. Typically, a creditor may threaten or file a lawsuit. Here, a careful review of the statute of limitations and the prospect of liability should be discussed between trustee and attorney.
Like the probate estate, the trustee will work with the trust’s CPA to ensure that all taxes are properly paid. If a federal estate tax return is due (Form 706), the estate must file it and pay the taxes due within nine months of the date of decedent’s death.
Once the creditor claims and taxes are finalized, the trustee must provide an accounting to the trust’s beneficiaries. Usually, the trustee will give this information to the attorney, who will put it in the proper legal form to serve it on all of the beneficiaries. Since there is no court overseeing things, the attorney will work to utilize the Florida trust administration statutes to minimize the trustee’s liability and to limit the amount of time that the beneficiaries have to object to the accounting. The accounting includes the following:
- The date of death value of the assets subject to the trust administration;
- Capital gains or losses on the sale or disposition of the assets;
- Income earned during the administration;
- Expenses paid or reserves to pay expenses;
- Professional fees (legal, accounting, tax);
- Trustee fees;
- Costs of the administration;
- Other “significant transactions” as defined by the statute;
- Funeral and other related costs;
- Specific distributions or bequests;
- Amount available for final distribution;
- Proposed final distribution to the beneficiaries or to establish testamentary trusts as provided under the trust
As you can see, this is a large job with significant responsibilities. Florida law entitles the trustee to take a fee for his or her services. A reasonable trustee’s fee is not, however, expressly prescribed under the statute. Comparing the trustee’s responsibilities to that of a personal representative, one might surmise that the fees should be comparable.
A trustee’s fee would be ordinary income subject to income tax, the same as when professionals must pay income tax on the fees that they receive. Depending upon the circumstances of the estate in question, the trustee may or may not wish to take a fee.
In addition to fees, the trustee may be reimbursed for any costs that he or she forwarded on behalf of the estate. Costs include travel, hotels, meals, rental car, gas, phone, clergy tips, funeral expenses, reception costs, and such other reasonable expenses paid out of the trustee’s own pocket. Cost reimbursement is not taxable as income to the trustee, but is also a valid deduction for the estate.
The same question regarding reimbursement of other family member’s costs of travel to the funeral as a trust expense applies.