Bite-Sized Bits of Knowledge

Hi, welcome back to another dose of Bite-Sized Bits of Knowledge, where we give you meaningful information in a short amount of time. Today, we’re continuing with trust administration. In particular, disclosures. 

I want to remind you that trust administration is an art and a science. A science is the way of doing it right and well, and the art is how you do it in a the way that maximizes the right and well part. 

The first thing I would mention here would be notices. When you take over as trustee, you have to give notices to the beneficiaries. In Florida, there are statutory timelines to do so. You got to give people notice. You got to give them an opportunity to have a copy of the documents. They have to have an opportunity to exercise their rights. 

Typically, that will include either a letter that says “As a trust or a beneficiary of the trust, we’re giving you an opportunity to have a copy of the trust.” Or it even just sends a copy of the trust and all amendments to the trust to them unilaterally. This is due typically 60 days after a date of death. 

If there’s a business in the trust estate, that could be an interesting issue to keep it going. You got to go back to that trustee succession. You got to update the documentation online, maybe the governing documents. There’s just stuff to look at there. 

The new with the Corporate Transparency Act kick in as well. We have a whole video dedicated to that under FinCEN, the Financial Crimes Enforcement Network that the Treasury Department put together to make everybody’s lives uncomfortable that has a business. Basically, we have a new managing controlling party of the trust. Therefore, we got to update our FinCEN information. 

I would also mention accountings when it comes to disclosures. The biggest thing I’ve seen go wrong in trust administration is the accountings. The trustee has a duty to account for what’s going on in the trust. There’s specific language in the statute as to what is required. 

But just for purposes of our video today, you have to keep your beneficiaries reasonably aware of what’s going on. You don’t have to tell them you sold three shares of Microsoft on June 26th and what price you bought it for and what price you sold it for. But you do have to tell them what’s going on, that there’s brokerage accounts. This is how much is in them. This is how much you gained or lost for the year. 

In Florida, that disclosure of an accounting has to be done at least annually. I see a lot of litigation on this particular issue where there’s a failure of the duty to account, and it is taken pretty seriously by the courts. The easiest way to go awry in your trust administration is failure to do proper accountings. If it can be done by the attorneys, that’s possible. If it’s contentious, I would recommend you have a CPA do it just to cover the butt. 

There’s annual accountings, and there’s a final accounting. In any other case, they’re served on the beneficiaries unless those beneficiaries waive it. They could waive it, but it’s a non-irrevocable waiver, in Florida, at least. 

Lastly, with respect to disclosures, I would mention tax reporting. Tax reporting is just like accountings. They go together because usually you do an accounting before you do the tax reporting. In a case of a person, you do a 1040. In a case of an irrevocable trust, you do a 1041. 

So just to remind you from previously where I mentioned that you have to file a final personal return, you’re going to file your annual 1041 as long as the trust is in effect, and a final one when it terminates, if it even does terminate in Florida. It can last up to a thousand years now. So that’s a lot of 1041s. 

And that’s your CPA working with your trustee to get the information, prepare the accountings, serve the accountings, file the tax returns. So disclosures is very important. 

The last thing I’ll mention in disclosures is that in terms of the art of being trustee and doing your trust administration, I would recommend that you don’t take a super rigid position of what information you give out with your beneficiaries. If they ask you questions, answer them. If they ask you for what’s going on or to see statements, be reasonable and give those things to them. 

If you’re going to take the hard line position that “You got an accounting once a year and don’t bother me,” that’s going to make them feel uncomfortable. There’s going to be lost trust. I think that that lack of transparency and communication is only going to serve you poorly and result in them hiring a lawyer. It’s going to fire some missiles and try to force their way into getting that information. 

I believe that communication, transparency, being reasonable, acting in good faith, it’s a dance and it’s a relationship. It needs to start the right way and needs to continue the right way to minimize what we call chaos, court, costs, and conflict.

That’s all for disclosures. Thank you for tuning in, and stay tuned for more.