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. 

We just finished the trust parties, and now we’re moving on to the first of four sections of how I break up trust administration, and that is succession and transition. Subsequent videos will talk about disclosures, trust management, and distributions. 

As I mentioned, trust administration is both an art and a science. Science is doing it right and well. The art is doing it in a way that lends itself to doing it right and well. There are good ways to do it and there’s bad ways to do it, and we’re going to talk about that. 

So, starting at the top, the succession and transition of a trust typically will start with the death of the grantor or the creator. Sometimes it starts when the trust becomes irrevocable – not caused by the death – but that’s unusual, or if it’s just a straight up irrevocable trust where the trustee starts out as the trustee of an irrevocable trust. 

But let’s just, for purpose of today, talk about trust administration, the context of a death of the grantor. Where that revocable trust becomes irrevocable immediately on death.

So first thing you got to do, we recommend you hire an attorney. Not just any attorney, but an attorney who does trusts in estates – you know, wills, trust, probate, estate planning – and also has experience in trust administration. 

During that meeting with your attorney, you’ll talk about the scope of work, whether or not you’re doing an estate, whether or not you’re doing a trust, whether or not you’re doing both. That’s important. It’s common to do both. 

You’re going to outline the material parts of the trust. Maybe that meeting or maybe not. Typically, we work as a team behind the scenes. We’ll map it out and we’ll lay it out for our trustee clients as to what the trust says, what it doesn’t say, and what your obligations are as the trustee. We have videos on it that we give exclusively to our trustee clients, but that’s besides the point. 

An outline of the material parts of the trust is important. You’re going to file the will, if there is one, with the court within 10 days by statute in Florida. It doesn’t have a lot of teeth, and it is often late, but you want to do that as soon as possible to be in compliance and not give ammunition to anybody else that you’re already out of the gate doing it wrong.

In terms of trustee succession, a trustee, just because they’re named does not mean that they have the authority to act. There’s usually a document that accepts that appointment, and it’s an important document to do soon after you take over. So you can have the authority to do what is necessary. And doing what is necessary, we’ll talk about soon. 

In addition, you’re going to want to secure the assets. If it’s property, real estate, bank, brokerage, anything that there’s risk or there’s other people involved, other people taking claims, people looting family members, looting property, precious items. 

Believe it or not, it happens all the time. And so securing the assets and the properties is probably the first thing the trustee needs to do, and that’s why they need to have that document – the succession document – done. 

Typically around this time, you’re going to get an employer your identification number, EIN, for the Internal Revenue Service to establish that this trust exists for tax purposes now. It’s no longer revocable. At that same time, you’re probably going to open up a bank account or a brokerage account to start to what we call Marshall Assets to the Trust if they’re not already there. If there is a trust account, then you’re just taking over that trust account for the time being. You may not need to create new accounts, but you can. It depends on the situation. 

You also want to hire an accountant, a CPA, for the final personal tax return, as well as any subsequent income tax returns or state tax returns that are needed. It’s very important to do that. Don’t forget the IRS is not subject to the general rules of other creditors and that they get paid back first. 

You want to make sure that the taxes are addressed. Just to remind you, when someone passes away, most likely they don’t pass away on December 31st, so it’s a partial a tax year that they lived and a partial tax year that they were deceased. You will have a tax return for that partial year, and you may have another return for the estate of the trust for the duration of that time they’re open. 

So you got to have an account and a CPA on your team and a lawyer on your team. You got to get the trustee succeeded correctly. You’ll see why more later, how they fit into the bigger picture of trust administration.

We’re going to move on next to Disclosures in the next video. Thank you for stopping by, and stay tuned for more.