Introduction
One of the saddest things I see during trust administration is families dealing with problems they could have avoided. A few simple steps before the settlor's death or incapacity could prevent many of these issues.
In many California trust administrations, trustees spend countless hours dealing with issues that could have been prevented with a little planning. These issues often delay distributions, increase expenses, create disputes among family members, and sometimes lead to unnecessary litigation.
This article discusses practical steps that individuals, especially older settlors, can take before death. These steps can make trust administration easier for trustees and beneficiaries.
Review Your Estate Plan Regularly
One of the most important steps a person can take is to have a properly drafted revocable living trust.
However, creating a trust is only the beginning. A trust should not be treated as a document that is signed once and then forgotten.
Most individuals should review their estate plan with an estate planning attorney every three to four years. They should review it sooner if the law changes significantly. They should also review it after major changes in family circumstances, finances, or personal wishes.
A trust that no longer reflects the settlor's family situation at the time of death can create significant problems during trust administration. Outdated provisions may lead to beneficiary disputes, confusion regarding the settlor's intentions, and, in some situations, costly litigation.
In addition to creating emotional strain for the family, these disputes can substantially delay distributions and reduce the value of the trust estate through attorney's fees and other administration expenses.
Make Sure the Trust Still Reflects Your Wishes
It is not enough for the trust to be legally valid. The settlor should also make sure that the trust continues to reflect their wishes as those wishes evolve over time.
The settlor should periodically review the trust's distribution provisions and the order of successor trustees. These provisions may have reflected the settlor's wishes when the trust was signed. However, they may no longer reflect those wishes years or even decades later.
One issue I frequently encounter is that settlors draft distribution provisions for family situations that no longer exist.
For example, a settlor may create a trust when their children are young. The trust may include provisions designed to preserve the family home until the children reach adulthood.
However, by the settlor's death, those children may be in their forties or fifties. They may own homes and have very different financial circumstances.
Similarly, a settlor may initially want to distribute assets equally among their children. Years later, the settlor may decide that certain assets should pass to a specific child, grandchild, or other beneficiary.
Unless the settlor properly updates the trust, the trustee must generally follow the trust's written terms.
The settlor should also review the individuals named to serve as successor trustees. A trustee who was a good choice ten years ago may no longer be willing, available, or capable of serving when the time comes.
Regularly reviewing these provisions can help ensure that the trust administration process reflects the settlor's actual wishes at the time of death rather than wishes that existed many years earlier.
Make Sure You Understand How Assets Will Be Distributed
When reviewing an estate plan, the settlor should not focus solely on who receives the trust assets after death. The settlor should also understand how the trust will distribute those assets. In addition, the settlor should determine whether any trusts will continue after death.
Many settlors review their trust's distribution provisions and conclude that everything is in order. They see the names of the beneficiaries they want to inherit their assets.
However, many settlors overlook an important detail. The trust may require the creation of one or more sub-trusts after the settlor's death.
For example, many trusts require the trustee to hold assets for minor beneficiaries in separate trusts. The trustee may hold those assets until the beneficiaries reach a specified age.
Similarly, many trusts create Special Needs Trusts or other protective trusts. These trusts benefit beneficiaries who receive government benefits because of a disability.
In other situations, the trust may provide for staggered distributions over time. Instead of receiving an immediate distribution, beneficiaries may receive assets in stages after the settlor's death.
For this reason, the settlor should periodically review the trust's distribution provisions. The settlor should make sure those provisions still reflect their wishes.
A trust that made perfect sense when a child was ten years old may no longer make sense. By the settlor's death, that child may be forty years old and financially independent.
Likewise, changes in a beneficiary's health, financial circumstances, or family situation may justify revisiting the trust's distribution provisions.
Understanding who will inherit trust assets is important. Understanding how those assets will be distributed is equally important. Doing both can help ensure that the trust accomplishes the settlor's goals. It can also reduce confusion and disputes during trust administration.
For married couples, it is also important to understand what happens after the death of the first spouse.
Many married settlors sign a joint trust and assume that all trust assets will remain in a single trust. They often expect the surviving spouse to continue managing those assets through that trust.
However, the trust may not work that way. Depending on how the trust is drafted, the death of the first settlor may require the trust estate to divide into multiple separate trusts.
For example, some trusts divide into a Survivor's Trust and one or more additional trusts upon the death of the first spouse. Other trusts provide that all assets remain in a single Survivor's Trust for the benefit of the surviving spouse.
Neither approach is necessarily better than the other. However, the settlors should understand which approach their trust uses and make sure it continues to reflect their wishes and planning objectives.
I have encountered situations where married settlors were unaware that their trust would divide into multiple trusts upon the death of the first spouse. I have also encountered situations where settlors expected a trust division to occur, but their current trust no longer provided for one. These misunderstandings can create confusion for the surviving spouse and the successor trustee during trust administration.
For this reason, married settlors should periodically review these provisions with their estate planning attorney and confirm that the trust's structure upon the death of the first spouse remains consistent with their intentions.
Put Your Wishes in Writing
One of the most common sources of conflict during trust administration occurs when family members believe that the settlor promised them a particular asset or intended for assets to be distributed in a manner different from what the estate planning documents provide.
Unfortunately, a settlor's unwritten wishes often create significant confusion after death.
The settlor must properly document their wishes. Otherwise, those wishes may have little or no legal effect.
The trustee must generally follow the trust and other estate planning documents. The trustee cannot rely on verbal statements, family understandings, or assumptions about the settlor's intentions.
For example, a beneficiary may sincerely believe that a parent promised them the family home. The beneficiary may also believe they were promised jewelry, a collection, or another asset.
In some cases, the beneficiary may be correct. However, if the estate planning documents do not reflect that intention, the trustee must generally follow the trust's written terms. The trustee must administer and distribute the assets according to those terms.
These situations can create significant conflict among beneficiaries. They can also lead to disputes that the family could have avoided entirely.
For this reason, settlors should properly document any significant wishes regarding asset distributions in their estate planning documents.
If a settlor's intentions change, they should update their estate plan accordingly. They should not rely on verbal statements or informal family discussions.
Clear written instructions can help ensure that the trustee follows the settlor's wishes. They can also significantly reduce disputes during trust administration.
Carefully Choose Your Successor Trustee
Selecting the right successor trustee is one of the most important decisions a settlor can make.
Many settlors spend significant time deciding who should inherit their assets but spend comparatively little time considering who should be responsible for administering the trust. In reality, the trustee often plays a critical role in determining how smoothly the trust administration process unfolds.
The settlor should periodically review the individuals named as successor trustees and make sure those choices still reflect the settlor's wishes and family circumstances. Just because someone was the right person to serve as trustee when the trust was originally signed does not mean that they remain the best choice years later.
Changes in age, health, financial circumstances, family relationships, geographic location, or personal responsibilities may affect an individual's ability to serve effectively as trustee.
The settlor should also understand that the trustee will often have significant discretion when administering the trust. While the trustee must follow the terms of the trust and comply with their fiduciary duties, many trusts contain provisions that require the trustee to exercise judgment when making decisions regarding trust administration, distributions, investments, and the management of trust assets.
For this reason, the settlor should choose someone who is trustworthy, organized, capable of handling financial matters, and likely to act fairly toward all beneficiaries.
In some situations, a settlor may conclude that a family member is the best choice. In other situations, the settlor may prefer to appoint a professional fiduciary, trust company, or another independent individual.
A carefully chosen trustee can help ensure that the trust administration process proceeds efficiently and in accordance with the settlor's wishes. Conversely, an inappropriate trustee selection can create delays, disputes, and unnecessary expense for both the trust and its beneficiaries.
To better understand the responsibilities that a successor trustee may face, read our article, What Does a Trustee Have to Do After Death in California?
Maintain an Updated List of Assets and Liabilities
Another issue I frequently encounter during trust administration is the lack of a clear and updated list of the settlor's assets and liabilities.
When a trustee does not know what assets exist or what debts the settlor owed, the trustee faces additional work. The trustee must identify accounts, locate property, and determine which liabilities require payment before making distributions.
For this reason, I strongly encourage clients to maintain an updated list of assets and a separate list of liabilities.
The asset list should identify bank accounts, investment accounts, retirement accounts, life insurance policies, real estate, business interests, and other significant property. The liability list should identify mortgages, loans, credit cards, lines of credit, and any other significant debts.
Ideally, these lists should be reviewed and updated at least once each year.
A current list of assets and liabilities can save a trustee a tremendous amount of time and may significantly reduce the cost and complexity of the trust administration process.
Make Sure Assets Are Properly Titled and Beneficiary Designations Are Updated
Once the settlor has prepared an updated list of assets, the next step is to make sure those assets will actually pass according to the estate plan.
One of the most common issues I encounter during trust administration involves assets that were never transferred into the trust. I also frequently find outdated beneficiary designations that no longer reflect the settlor's wishes. For this reason, settlors should periodically review their assets and confirm that ownership and beneficiary designations remain consistent with their estate planning goals.
Review Real Estate Ownership
For real estate, the settlor should review the title to each property and confirm that the property is titled correctly.
If the intention is for the property to be owned by the trust, the title should reflect that ownership. Failing to properly transfer real estate into the trust can create significant complications during trust administration and, in some situations, may require additional legal proceedings after the settlor's death.
To learn more about what may happen when assets are not properly transferred into a trust, please read our article, What Happens If Assets Are Left Outside a Trust in California?
If the trust owns real estate, families should also understand that the trustee may eventually need to decide whether the property should be sold. To learn more, read our article, Can a Trustee Sell a House During Trust Administration in California?
Review Bank and Investment Accounts
The settlor should also review bank accounts, brokerage accounts, and other financial accounts.
Depending on the settlor's goals, these accounts may be titled in the name of the trust. Alternatively, they may have Transfer on Death ("TOD") or Pay on Death ("POD") beneficiary designations.
The settlor should confirm that all beneficiary designations reflect their current wishes. The settlor should also ensure that those designations align with the overall estate plan.
Review Life Insurance and Retirement Accounts
Life insurance policies and retirement accounts should receive special attention.
Unlike many other assets, these accounts generally pass according to the beneficiary designation on file with the financial institution rather than according to the terms of the trust or will.
For this reason, the settlor should periodically contact the companies that hold life insurance policies, IRAs, 401(k)s, and other retirement accounts to verify that the designated beneficiaries remain accurate and reflect the settlor's current wishes.
An outdated beneficiary designation can undermine an otherwise well-drafted estate plan and create unintended results for the settlor's family.
Make Sure the Trustee Can Access Digital Assets
Another issue that frequently arises during trust administration involves digital assets and online accounts.
Today, many individuals maintain valuable assets and important information online. These may include email accounts, online banking accounts, investment accounts, social media accounts, cloud storage accounts, cryptocurrency wallets, password managers, and other digital assets.
Unfortunately, it is not uncommon for a trustee to know that these assets exist but have no practical way to access them after the settlor's death.
For this reason, the settlor should make sure that passwords, access credentials, recovery information, and other important digital access information are stored in a secure location.
Equally important, the settlor should ensure that the successor trustee knows where this information is located and how to access it when needed.
This issue is particularly important for cryptocurrency and other digital assets that rely on private keys, seed phrases, or other forms of digital authentication. In some situations, if this information is lost, the asset may become permanently inaccessible regardless of its value.
While security remains important, accessibility is equally important. A password that is perfectly secure but impossible for the successor trustee to locate may create significant delays, expense, and frustration during trust administration.
Taking the time to organize digital asset information before death or incapacity can save the trustee substantial time and help ensure that valuable assets are not overlooked or lost.
Create a Personal Property Memorandum for Sentimental Items
One issue that surprises many families during trust administration is how often disputes arise over personal property.
In many cases, small tangible personal property items have little monetary value. However, those same items may have significant sentimental value to one or more beneficiaries. As a result, disagreements regarding family heirlooms, jewelry, photographs, furniture, collectibles, and other personal belongings can sometimes create substantial conflict during trust administration.
For example, a trustee may view a particular item as having little value and decide that it should be sold or distributed in a certain manner. However, a beneficiary may have a strong emotional attachment to that item and believe that the settlor intended for them to receive it.
One way to help avoid these disputes is through a properly prepared Personal Property Memorandum ("PPM").
A Personal Property Memorandum allows the settlor to identify specific items of tangible personal property. It also allows the settlor to designate who should receive those items after death.
By documenting these wishes in advance, the settlor can provide valuable guidance to the trustee. This documentation can also reduce disagreements among beneficiaries.
If the settlor wishes to use a Personal Property Memorandum, the settlor should carefully identify each item and clearly identify the intended beneficiary.
The settlor should also consult with an estate planning attorney. The attorney can ensure that the Personal Property Memorandum complies with California law. The attorney can also confirm that the memorandum includes only assets that qualify for distribution through a Personal Property Memorandum. Certain assets require different transfer methods and should not appear in the memorandum.
A properly prepared Personal Property Memorandum can often save trustees and beneficiaries significant time, expense, and conflict during the trust administration process.
To learn more about Personal Property Memorandums, including what assets may be distributed through a Personal Property Memorandum and the requirements for creating a valid Personal Property Memorandum in California, please read our article, Personal Property Memorandum: Why You Need One?
Consider Making Smaller Charitable Gifts During Your Lifetime
Many settlors support charitable organizations and wish to leave gifts to those organizations upon their death. In my opinion, charitable giving is often admirable and reflects values that are important to the settlor.
However, when a settlor intends to leave relatively small gifts to multiple charities, it may be worth considering whether those gifts can be made during the settlor's lifetime instead.
One issue I have encountered during trust administration is that charitable gifts can create significantly more work than many settlors realize.
For example, I recently assisted with a trust administration in which the settlor wished to leave the lesser of $1,000 or 0.1% of the value of the estate to seven different charitable organizations. While the gifts themselves were relatively modest, administering those gifts required a substantial amount of additional work.
Several charities listed in the trust no longer existed when the settlor died. As a result, the trustee spent time identifying successor organizations and determining how to distribute the gifts.
For charities that remained active, the trustee had to provide trust documents and other information. The charities then sent those documents to their legal or administrative departments for review. Those departments reviewed the documents before accepting the distributions.
As a result, distributions that represented a relatively small portion of the estate created delays and additional administrative work for the trustee.
For this reason, settlors who intend to make modest charitable gifts may wish to consider whether those gifts can be made during their lifetime rather than through their estate plan. Doing so allows the settlor to personally observe the impact of the gift while potentially simplifying the trust administration process for the trustee and beneficiaries.
Of course, every situation is different, and charitable gifts should be evaluated in light of the settlor's overall estate planning goals, financial circumstances, and charitable intentions.
Tell Your Trustee Where the Documents Are
Surprisingly, one of the most common and most avoidable problems I encounter is that family members know an estate plan exists but have no idea where to find it.
I doubt there is an estate planning attorney who has not received a phone call from someone they have never met asking whether they prepared a trust for a deceased parent or grandparent.
A trust cannot help the trustee if nobody can locate it.
For this reason, one of the most important things a settlor can do is make sure that the successor trustee knows where the original estate planning documents are located and how to access them if necessary.
Failure to do so can create significant delays, confusion, and unnecessary expense during the trust administration process.
Make Sure Your Family Knows Who to Contact
Many assets are not as easy to locate as a traditional bank account or retirement account.
For example, a settlor may have a financial advisor, money manager, insurance agent, business partner, accountant, or other professional who assists with managing certain assets.
The successor trustee should know who these individuals are and how to contact them.
Providing a list of important professional contacts can save the trustee significant time and effort. It can also help the trustee identify and locate valuable assets. This reduces the risk of overlooking those assets during trust administration.
Document Funeral and Burial Wishes
Funeral and burial instructions often hold great importance for the settlor. However, many people overlook these instructions during the estate planning process.
For example, a settlor may have purchased a burial plot, prepaid funeral services, or established specific wishes regarding burial, cremation, religious services, or memorial arrangements.
The settlor should clearly communicate these wishes to the successor trustee. When appropriate, the settlor should also document these wishes in the estate plan.
If the settlor has purchased a burial plot or prepaid funeral services, copies of the relevant contracts should be maintained with the estate planning documents. The successor trustee should also know where those documents are located and how to access them.
If the settlor has already purchased a burial plot, funeral package, or other funeral-related arrangements, it is often helpful to include copies of the relevant contracts and account information with the estate planning documents. Doing so can save the successor trustee significant time and prevent confusion during an already difficult period.
Taking these simple steps can reduce stress for surviving family members. These steps can also help ensure that the trustee follows the settlor's wishes.
Consider Discussing Your Estate Plan With Your Family
Whether a settlor should discuss their estate plan with family members is a personal decision.
On one hand, discussing the plan in advance can reduce confusion, set expectations, and help avoid disputes during trust administration. Family members who understand the broad structure of the estate plan are often less surprised by the trustee's actions after the settlor's death.
On the other hand, discussions regarding inheritances and distributions can sometimes create tension, disagreements, or family conflict.
For this reason, every settlor should carefully consider their unique family dynamics and determine whether discussing some or all of the estate plan with family members is appropriate.
Final Thoughts
Trust administration should follow a clear and organized process. The trustee should gather assets, pay valid expenses, and distribute property according to the settlor's wishes. Many trust administration problems begin long before the settlor's death.
Simple planning steps can prevent many common issues.
Settlors should keep their estate planning documents current and maintain updated asset and liability lists. They should properly fund their trusts, regularly review beneficiary designations, and clearly document their wishes. Settlors should also select the right successor trustee, organize digital information, and communicate important information to that trustee.
These actions can reduce conflict, delays, and unnecessary expenses.
The best trust administrations often begin years before the settlor's death.
Preparation today can save trustees significant time and stress later.
Preparation can also help beneficiaries receive their inheritances more efficiently.
Most importantly, preparation helps ensure that the settlor's wishes guide the trust administration process.
Why Work With Amichai Law?
At Amichai Law, we assist families throughout the trust administration process and regularly help successor trustees navigate complex legal, financial, and practical issues following the death of a loved one.
Our experience includes trust administrations involving real estate, business interests, retirement accounts, investment portfolios, and beneficiaries with a wide variety of family and financial circumstances.
We understand that many successor trustees have never administered a trust before. For that reason, we strive to provide clear guidance, practical advice, and responsive communication throughout the administration process.
If you are serving as a successor trustee and need guidance regarding the administration of a trust after the death of a loved one, learn more about our San Diego Trust Administration Services.
Need Help Administering a Trust?
Serving as a successor trustee can feel overwhelming. Real estate, multiple beneficiaries, tax issues, and assets outside the trust can complicate the process.
Many trustees have never administered a trust before. As a result, they often question whether they are taking the right steps.
If you have questions about administering a trust, helping a parent organize their affairs, trust funding, beneficiary issues, or the trust administration process in California, Amichai Law can help.
Schedule a Trust Administration Consultation to discuss your situation and learn about your options.
Disclaimer
This article provides general educational and informational content only. This article does not provide legal advice. Trust administration involves complex legal and financial issues. Every trust administration presents unique facts and circumstances. Asset values, asset types, and asset locations often affect the administration process. Beneficiary numbers, beneficiary ages, and beneficiary capacity may also affect the administration process. Tax issues, creditor claims, and family disputes can create additional challenges. Trustees often underestimate the number of responsibilities that accompany trust administration. Most successor trustees have never administered a trust before. Trustees should seek guidance from qualified legal counsel and tax professionals when appropriate. Readers should not rely on this article as a substitute for legal advice. Readers should consult a qualified attorney regarding their specific circumstances. Reading this article does not create an attorney-client relationship. Different facts may require different legal strategies and solutions.