There’s much confusion for family members when a loved one dies with a revocable trust. Often they believe that the successor trustee can simply wrap things up and distribute the trust assets right away. That’s not the case. When all or some part of the decedent’s assets are held in a revocable trust at the time of his or her death, then the successor trustee has many of the same duties that the personal representative has when probating a will.
Simply said, whoever is serving as trustee must, under Florida law:
- Marshal the assets of trust—change title of the accounts from the decedent as the original trustee of the trust to whomever is acting as trustee of the administrative trust;
- Obtain date of death values of the trustassets;
- Preserve the trustassets (prudent investor rule) during the trust administration;
- Ensure that all of the decedent’s creditorsare paid;
- File all necessary tax returns and ensure that taxes are paid;
- Prepare and file accountings to the beneficiaries; and
- Make distribution to the beneficiaries or establish the testamentary trusts (Chapters Eleven & Twelve) created under the terms of the trust.
The difference between the personal representative duties in a probate administration and a trustee’s duties in a trust administration is that the probate administration is overseen by a court of law. It is a public process that must await a judge’s order to act.
Determining the most recent (and therefore governing) trust document and any amendments is different. Recall my “Uncle Ed” story last week where the probate court ruled which of Uncle Ed’s wills and codicils controlled the disposition of his estate assets. In a trust administration, the trustee must have confidence that she is operating with the most recent document. That is why it is important for the trustee (through her attorney) to forward what she believes to be the most recent documents to all interested parties. This gives all the right to present any other trust document that may amend or otherwise conflict with the documents that the trustee is aware of.
If the trustee and any other party can’t agree which of the decedent’s documents control, then the trustee is likely to institute a civil court action to determine the proper beneficiaries.
The person named as trustee next accepts the office by signing an acceptance document that is filed with the probate court. Because a probate may not be necessary, Florida law provides that this public document puts everyone on notice that there is a trust with assets—and provides the trustee’s contact information as well as that of her attorney.
Another significant difference regards clearing the decedent’s creditors. The probate process has a definite time period (three months) under which a creditor must file a claim against the estate. Once all of the creditors are cleared, then the personal representative is free to make final distribution without fear of having to satisfy a creditor claim out of his own pocket.
The statutory time limit in a trust administration, in contrast, is two (2) years under Florida law. Florida’s trust administration statutes do not contain a corresponding legal function to clear creditors in a relatively short 90-day period as exists under Florida’s Probate Code. The Probate Code also contains provisions to deal with creditor disputes through its objection to creditor claims statutes. Florida’s trust administration statutes do not provide the same type of laws.
So what is a trustee to do? If he makes final distribution before the two-year window expires, then he could have to come out of pocket to satisfy a creditor. One answer is to open an “empty probate” simply to clear creditors in a 90-day window. By “empty probate” I mean that the probate proceeding is opened only to use the Probate Rules to ensure that all creditors have had “due process” to make a claim against the estate. It’s not as onerous as a regular full probate because the court doesn’t have any jurisdiction over the trust assets. The probate inventory is zero, as all of the assets are held in the trust. Another option is to hold some assets in a reserve fund until the two-year window closes.
After filing the necessary tax returns and either making payment of or reserving sufficient funds for taxes, the trustee must work to prepare accountings to the beneficiaries, and eventually make distribution of the assets.
Revocable trusts commonly contain testamentary trusts that benefit the surviving spouse for the rest of his or her life (marital trust) or a continuing trust for children or other family members. Here, the trustee will transfer the assets from the administrative trust to the trustee of the continuing trusts.
Since there is no court to discharge a trustee like there is in a probate to discharge a personal representative from liability, it is important for the trustee to obtain consents and waivers from the trust beneficiaries indicating that they have had the opportunity to review the trust, to verify the trust inventory, and to approve or waive any objection to the accounting.
One final comment—sometimes there are assets in the trust as well as in the decedent’s name individually. When this happens, you have a simultaneous probate and trust administration. This isn’t the best situation, and usually happens because a revocable trust was only partially funded during the grantor’s lifetime. Here, there are laws that serve to coordinate the actions of the trustee and the personal representative. Often these are the same individuals, but there are different notice and accounting rules when they are not. The attorney’s expertise is vital in this situation to help guide the process.