Trust administration is a process that many people are thrown into after the death of a spouse or parent who was responsible for creating the trust prior to their death. The trust administration process is lengthy and challenging.
It’s not easy to serve as the administrator of a trust, which is why it’s in your best interest to work with an estate planning attorney from Ovando Bowen, LLP. Estate tax law is difficult and has many nuances that impact how you value assets and distribute them to beneficiaries.
The Stages of Trust Administration
There are defined stages of trust administration that trust administrators must follow. A trust administrator is a person named to handle the trust and distribute the assets upon the death of the person who created it.
Take Inventory of the Assets
The first part of the administration process is to take inventory of the assets held in the trust. This includes determining who the owner is of all the assets. The trust administration attorney working with you will obtain a date-of-death valuation of every single asset. This is an important step because the value of the assets can have implications on any estate and income taxes.
Determine the Estate Tax
A person is permitted to pass $5 million without incurring federal estate taxes. This amount has been doubled temporarily between the years 2018 and 2025. Despite this, there are states that have much lower limits for their estate taxes.
An attorney from the office of Ovando Bowen, LLP can help determine the following:
- Which assets are held in the trust
- Which assets are outside of the trust
- Which assets are required to go through the probate process
- Which assets will be subjected to the estate tax
An estate tax is required to be paid within nine months of the date your family member died. The payment is to be submitted with the estate tax return, using Form 706.
Divide the Trust Assets
When a married couple opts for incorporating tax and estate planning into a Living Trust, they are in possession of an A-B or A-B-C Trust. This type of trust makes sure that the assets of the deceased spouse can be used by the surviving spouse, but are still held in the trust. When these assets are held in the trust, they are shielded from possible estate tax when the surviving spouse dies.
File IRS Form 706
IRS regulations require that Form 706 be filed within nine months of the recorded date of death. This form must be filed in addition to Form 1040 for the year in which your family member died and Form 1041 for every year the trust existed following the trustor’s death.
Distribute Assets to Beneficiaries
The trustee, or the person placed in charge of the trust, must follow the instructions laid out by the trustor. This means he or she must distribute the assets of the trust to the named beneficiaries following the instructions and not how they see fit. Prior to distributing the assets to beneficiaries, the trustee must ensure that all creditors are paid and that all tax payments are made to the IRS and the state.
Trust Administration or Probate?
Probate is a legal process that requires court supervision when dealing with a trust or an estate. It is much longer than trust administration and will wind up costing more in the long run. Probate can take 12 months or longer to complete and the trustee is not permitted to distribute any assets without the permission of the court. The probate process is public, which means there will be a record of it with the court for anyone to read.
Contact a Trust Administration Attorney Today
Creating a trust is an excellent way to protect your assets and ensure that they wind up in the hands of the family members and friends of your choosing. Trust administration and probate is a lengthy process that involves a lot of tax law. Contact the office of Ovando Bowen, LLP today to schedule a consultation with an experienced member of our team.