Let Our Estate Planning Attorneys Help You Administer A Revocable Living Trust
Probate avoidance is typically the primary concern of many clients when using a revocable living trust (RLT) as a will substitute for estate planning purposes. Indeed, an RLT can be a beneficial way to avoid the probate of trust assets. However, many trustees responsible for handling trust assets after the settlor dies are often misinformed or misunderstand their obligations beyond the instruction to simply “distribute the assets and walk away.”
RLT assets are not equivalent to payable-on-death (POD) or other direct beneficiary designations. Such designations are contractual in nature with the financial institution or insurance company and may immediately be turned over to the death beneficiary when the owner dies. With RLTs, trustees are obligated by law to follow strict procedures when administering a trust after the settlor’s death. Florida statute and case law clearly lay out the duties of a trustee. If the trustee fails to follow these obligations they expose themselves to significant liability for breach of duty to the trust beneficiaries and, potentially, estate creditors and other interested parties.
All trustees should seek the advice of a trust attorney, CPA and other professionals as needed to assist them with proper administration of trust assets. This helps protect not only the trustee but also the beneficiaries and other interested parties to whom the trustee owes an obligation.
The Basic Duties And Obligations Of A Trustee
Specific obligations of the trustee include, but are not limited to, the following:
- File a notice of trust with the probate court (F.S. 736.05055).
- File the decedent’s last will & testament with the probate court within 10 days of death (if in the trustee’s possession) (F.S. 732.901).
- Provide proper notice to all qualified beneficiaries of the trust (F.S. 736.0813).
- Obtain a new tax ID number for the trust.
- Notify appropriate financial institutions of the settlor’s death and re-title or otherwise consolidate trust accounts and assets.
- If the trust assets include real property, ensure taxes and utilities are paid, obtain necessary property insurance, and take other appropriate protective measures.
- Ensure that all appropriate tax returns are filed and any taxes owed are paid, including the settlor’s final return and any ongoing tax returns for the trust.
- Provide an accounting to all trust beneficiaries or obtain waivers of accounting from the beneficiaries (F.S. 736.0813).
- If necessary, ensure that all estate creditors are satisfied prior to distributing trust assets.
Generally, a trustee’s obligations include a fiduciary duty to all trust beneficiaries, avoidance of self-dealing with respect to trust assets, and a duty of impartiality toward all trust beneficiaries. The trustee must also prudently invest trust assets and pay only reasonable and proper expenses from the trust (including trustee commissions, attorney fees, taxes and creditor claims).
Trust Assets May Be Needed To Satisfy Creditor Claims
One common misconception is that trust assets cannot be reached by a decedent’s creditors after death; this is incorrect. While payment of creditor claims is first an obligation of the decedent’s probate estate, should the probate estate contain insufficient assets to handle these claims then creditors may seek payment from trust assets. Creditors have two years to make a claim against a decedent’s estate or trust assets (although this may be shortened by opening a probate administration for the purpose of barring creditors). The trustee may be personally liable should any distributions be made without first ensuring any creditor claims are satisfied or barred.
A Trustee’s Work Is More Complex When There Are Ongoing Obligations
Proper administration of the trust becomes more imperative when the trust contains ongoing obligations of the trustee, such as when trust assets are to be held for a period of time before distribution to the beneficiary. This may occur when the beneficiaries are minors, are spendthrifts, or have a disability that precludes an outright distribution of trust assets. In these circumstances, the trustee has ongoing obligations that may continue for years.
When working with disabled beneficiaries, the trustee may be obligated to establish further trusts for the benefit of the disabled individual. These supplemental needs trusts (SNT) carry with them their own duties and obligations. In addition to claims for breach of duty, failure to properly administer an SNT may jeopardize any public benefits (such a Medicaid or SSI) for which the beneficiary is eligible.
Making Prudent Decisions Regarding Trustee Compensation And Expenses
Most trusts allow the trustee to seek compensation (a commission) for their work as trustee. Likewise, trustees may reimburse themselves for proper expenses incurred when carrying out their duties as trustee. However, trustees should not take this as carte blanche authority to spend trust assets (e.g., expensive meals and first-class travel). Trust beneficiaries and other interested parties have the right to review all trust expenditures and object to any disbursements that appear improper, and trustees may find themselves in the position of defending questionable use of trust assets. As noted above, all trustees should seek the advice of a trust attorney and other professionals in order to minimize the risk of liability for failure to properly administer the trust.
Learn More During An Initial Consultation
To discuss the administration of a revocable living trust with one of our experienced attorneys, contact us in Coral Springs to schedule a consultation. Just call 954-227-7320 or fill out our online contact form. We serve clients throughout South Florida.