The following was written by Attorney Jack E. Stephens, for the professional manual, Rules of Trust Administration in California, regarding the admistration of a Living Trust on the death of a Trustor. This is Part 1 of an ongoing series.
On the death of a client we are normally contacted within a relatively short time of the event. If it is the death of a spouse, we usually have an existing relationship with the surviving spouse as a client. If a child of the deceased parent/client is initiating the contact, the child is aware of our previous legal services through our follow-up letters to the children as designated successor beneficiaries.
My first question to a surviving spouse before setting an appointment for the Trust Administration is: “Are you emotionally ready for this undertaking?” If not, I advise them to put it off for awhile. Remember, some of these couples have been married for forty or fifty years and emotions are fragile. Many are now alone for the first time in years with no family support. Now they are having to face the reality of a deceased soulmate and delve into an activity of asset inventory that may be foreign to them. As a result, assets or important matters may be overlooked or forgotten.
My second inquiry is whether they have anyone in the family, or a close friend, to help. Usually they do. It’s important to suggest that they utilize that person’s services to aid them in preparing for the initial Trust Administration consultation.
Finally, we inform them that a letter will be forthcoming which will include a list of items to bring in for the consultation.
Letter to Successor Trustee
1. If I have prepared the estate plan, I will have copies of the documents. However, we request that they bring in the original documents to confirm they have them, especially the Will which will need to be filed with the San Diego County Probate Business Department.
2. I request an inventory of all properties and assets. Remember to include timeshares and promissory notes which are often overlooked. Also, the digital assets and accounts need to be included as discussed later.
3. I want to see the financial statements and copies of deeds to verify their inclusion in the Trust. It is been our experience that deeds can’t be located by the client Trustee. In the alternative, they could produce the Assessor property tax statement that reveals how title is held on the real properties. However, if I am clearing title to the property, I will eventually need the Grant Deed. We use Chicago Title to acquire copies of the deeds if they cannot be produced by the client Trustee.
The financial statements for investments and bank accounts will state if the account is held in Trust. Also, it will provide information as to which accounts are held as IRA investments.
4. Schedule B of the tax return will provide evidence of income sources. Sometimes elderly surviving spouses are unsure of their financial assets. Schedule B will indicate the investment accounts generating income and I use it as a safety net in case some assets were not included in the inventory.
5. Designated Beneficiary Forms should be provided in order to confirm retirement plan beneficiaries. This is very important for Inherited IRAs which are discussed later. If the clients are unable to locate them such beneficiary designations can hopefully be provided by the IRA custodians.
6. Names and addresses of all Trust beneficiaries and heirs at law need to be listed by the client Trustee for the statutory notices that must be mailed as required by law.
As you can gather from the letter, it is designed to get your client Trustee organized and to convey the idea that there are responsible undertakings required. Additionally, it provides essential information for you so as to properly assess your time and fees.
Inquiry of Potential Minefields In the initial Trust Administration I want to know if there are any challenges on the horizon. For instance, are there any rivalries among siblings, disgruntled beneficiaries or in-law problems. Also, are there any complications with Trust funding or title issues. Maybe there are heirs who have been unavailable for years with questionable locations or creditors with unique claims. This is the time to bring these issues to the table and attempt some resolution.
Include a section on your questionnaire or client in-take form for Trustee concerns. Be explicit in the consultation in your inquiries regarding beneficiary relationships and propensities for conflict. If Co-Successor Trustees are designated make sure that you represent both or all and communicate in writing that the attorney cannot favor any designated Trustee. Any contrasting positions regarding Trust issues by Co-Trustees must be dealt with early and emphatically to avoid Trustee degeneration of Co- Trustee cooperation.
It is my practice, unless there are unusual circumstances otherwise, to assign the client the responsibility of contacting social security regarding check reimbursements or incidental issues. These type of bureaucracies can create a fee issue with clients because of the time expended to obtain information. Have the Trustee/Executor assume these tasks. Also, I assign the Trustee the mundane responsibility of obtaining life insurance proceeds on the death of the owner. Annuity issues are more of a concern because of the distribution options and restrictions. For more sophisticated Trustees, I will assign some of the more technical duties including obtaining the E.I.N. or tax I.D. for the Trust.
It is important that the attorney specify precisely the responsibilities he/she is responsible for on the Retainer Agreement. If there are any questions in this regard, you have written evidence to support the assignment.
Overview of Trustee Duties
It is essential for the Trustee to understand his/her role. Typically, if the Trustee is also a child/beneficiary, he/she needs to be reminded that their primary duty of loyalty is to the beneficiaries. The Trustee must avoid a conflict of interest and communicate regularly with the beneficiaries. Another potential problem is distributing the Trust estate before the debts and taxes have been paid or before the statutory notice period to beneficiaries has expired as discussed in a following section.
Part 2 is soon to follow.