Trust Administration
Trust administration for revocable living trusts starts when the trust becomes irrevocable upon the grantor’s death. Lifetime administration of a trust, however, begins as soon as the trust is created if assets such as real estate, bank accounts, or other investments are placed into the name of the trust.
In general, successful trust administration involves a number of key initial steps, including:
A trustee’s main responsibility is to carefully analyze the trust document to become familiar with its beneficiaries, terms, designations, distribution strategy, and powers held by the trustee. This calls for a thorough examination, as even the smallest misreading can create substantial problems in the future. Upon completion, the trustee should develop a detailed list of assets contained in the trust, including personal property, business holdings, financial accounts, investments, and real estate.
Trustees have a critical job, as they must gather, protect, and properly value the assets within the trust. This important task includes a number of key steps. To start, assets not formally in the trust’s name need to be retitled. It’s possible this could require going through probate court to manage a decedent’s assets. Next, the trustee needs to enlist professional appraisers to determine the correct value of assets such as business holdings, real estate, and highly valuable personal property.
These valuations should be meticulously documented as of the date of death or any other date required by tax rules. Finally, the trustee must shield physical assets from harm or loss by securing proper insurance protection and security measures. Trustees can count on Collens Estate Law to provide valuable input for all phases of the trust administration process, including asset collection and valuation.
Under Michigan law, a trustee is required to notify beneficiaries within 63 days after taking on the role. This legal requirement informs the beneficiaries that the trust exists while identifying the grantor. The notification must also let the beneficiaries know that they have the right to obtain copies of the trust instrument so they can review what they are entitled to.
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The administration of the trust can take anywhere from a few months to several years or even longer depending on the complexity of the assets and provisions. For example, unique or difficult-to-value items typically require longer amounts of time for evaluation and appraisal. With respect to the selling of assets, market conditions can add another level of uncertainty to the timeline. Additionally, it’s possible the trust document may require distributions based on age and/or event milestones, which can significantly extend the administration process.
Trustees should promptly secure bank accounts exclusive to the trust. Liquid assets should be moved into these accounts soon after they are established. Investment accounts should also be opened based on the investment strategy and distribution needs of the trust. It’s also important to establish robust accounting systems for tracking distributions, income, and expenses during the administration process.
Creating a distribution plan that aligns with the terms of the trust while balancing the needs of beneficiaries with trust objectives is vitally important. The same is true for establishing a clear schedule for distributions, which supports consistent trust management while managing beneficiary expectations. It’s also important to collaborate with financial advisors. This helps nsure both scheduled and unexpected distributions can be met without being forced to liquidate assets under unfavorable conditions.
Michigan law holds trustees to a fiduciary duty, the highest legal standard of care. Trustees must act in the best interest of beneficiaries and manage trust assets with diligence and good judgment.
Developing a distribution strategy with help from a reputable firm such as Collens Estate Law is highly recommended, as this all-important standard applies to every part of trust administration. Trustees that fail to meet their fiduciary duty could face serious personal liability.
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Based on Michigan’s adoption of the Uniform Prudent Investor Act, trustees should focus on an overall investment strategy for the trust versus individual investment performance. Risk and return objectives should be balanced appropriately according to the trust’s purpose and the needs of its beneficiaries. Additionally, trustees should work to keep investment management costs under control, as unnecessary fees and expenses can diminish the value of the trust in the long run.
It is the trustee’s responsibility to maintain proper insurance on assets such as vehicles, real estate, and other valuable property. It’s also their job to keep close watch on the trust’s investments, monitoring emerging trends that could impact its value. If required, the trustee may need to change investment advisors, rebalance the portfolio, or sell off certain assets. Additionally, a trustee may be called upon to protect trust property from creditor claims, which would typically require knowledge of asset protection laws or the assistance of legal counsel.
Successful trust management begins with clear and consistent communication with beneficiaries. This not only helps ensure smooth and well managed administration of the trust—it’s a legal requirement. Reasonable requests for information should be answered quickly and thoroughly by the trustee. Equally important, the trustee should provide beneficiaries with consistent updates regarding how the trust is being managed. These updates, along with annual reports, will help maintain trust and transparency with all relevant parties.