After a loved one passes away, family and friends of the loved one must turn from the work of mourning to the work of settling the estate. While estate planning documents like a will or a trust reveal the intended next steps, the process still requires careful attention in order to avoid costly mistakes. If a loved one has prepared a trust under Arizona law, the trust administration process is governed by the Arizona Trust Code, beginning at ARS 14-10101.
Trust Administration Pitfalls
A trust should, in theory, ease the administration process. This is in contrast with administrating a will that must be admitted and administered publicly through probate court. In fact, many families decide that the private nature of a trust is reason alone to create an Arizona trust versus a simple will. However, too many trust creators, or trust makers, neglect to properly follow through by transferring all assets into the name of the trust after the trust is created. When this happens, probate may need to be opened simply to allow the transfer of any remaining assets to the trust.
Simple oversights such as these complicate trust administration. Consult an Arizona trust administration attorney for the specific issues and concerns facing your particular situation.
Who is the trustee?
The trustee is the person nominated in the trust to carry out the trust maker’s wishes. The trust is in essence a private contract that follows basic contract laws. There is an offer for the trustee who must accept the role, with the exchange of benefits given in the trust document. Often, a trustee is also a beneficiary, such as in the case of a husband naming his wife as trustee and vice versa.
The trustee must first accept responsibility of following the wishes of the trust maker. By doing so, the trustee obligates him or herself to various “fiduciary duties,” whereby the trustee agrees to act solely in the best interest of the trust without pursuing self-serving actions. This includes, among other things, full disclosure of the status of distribution, remaining loyal to the trust, and preserving the assets in the trust. Consequently, if the beneficiaries suspect foul play or self-interest, any beneficiary may start trust litigation against the trustee for breach of fiduciary duty should any beneficiaries wish to challenge the trustee’s decisions. This type of action is often seen where the trustee does not report to the beneficiaries or does not follow the terms of the trust. But, trust disputes arise in many ways.
In other situations, a trustee must use his or her discretion in making a decision with long-term consequences, such as where a trustee chooses to invest liquid assets into the stock market versus something less risky. In those cases, the trustee’s decisions may be challenged if it can be established that the trustee abused his or her discretion. As you can imagine, that is typically a difficult standard to meet.
What happens if the trustee becomes unavailable? Unavailability can happen due to a trustee moving away, experiencing financial hardship, incapacitation, or even death. What if the trustee just would prefer to resign? The trust language should offer guidance as to whom the trust maker elects as alternate or successor trustees. If those alternates are not specified in the trust, the Trust Code provides guidance. The trustee or beneficiaries may petition the court to assign a trustee. Any successor trustees must also adhere to the fiduciary duties to execute the trust according to the trust maker’s instructions.
Sound estate planning will attempt to exhaust the possibilities for alternative trustees, including listing a bank as trustee if necessary.
Trust disputes may also arise where there is a question over whether the trust itself was validly adopted. Such disputes may involve allegations that the trust maker lacked testamentary capacity or was unduly influenced or that his signature was forged. It is useful to consult with an experienced trust litigation attorney to evaluate those situations.
How “funding” the trust affects trust administration
After the trustee has accepted the responsibility of following the trust maker’s wishes, the next step is determining all the assets of the trust. This includes valuation of real estate property, vehicles, and financial instruments, like insurance, stocks, bonds, and other trust or bank accounts. The issue of locating the property can come up during this stage of the process. For instance, does the trust maker hold title to real estate in another state?
A large question during this stage deals with the titling of assets. Namely, have any assets remained titled in the name of the individuals, rather than in the name of the trust?
Since the trust is a contractual agreement between the trustee and trust maker, the issue of titling assets affects trust administration. The trustee only has as much power as is granted within the contract. Therefore, if the trust does not hold title to some piece of property or financial instrument, it lies outside the power of the trustee to administer. While this issue is not fatal to the trust’s administration, it does typically require opening a probate case for the distribution of specific property from the estate to the trust. Opening probate for what may amount to little value or a single item can be a costly decision and is best discussed with a trust administration attorney. There may be other ways to transfer the missing assets to the trust.
For these reasons, titling of assets or funding the trust is a vital component to completing the trust administration process before the trust maker dies.
Get the answers you need
The trust administration process differs according to the unique specifications of the trust and assets involved. If you or a loved one has questions about any trust administration or litigation, please do not hesitate to reach out. Berk Law Group, P.C. is here to help you understand, initiate, and conclude the trust administration process.
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