Estate & Trust Administration For Dummies

Margaret A. Munro, Kathryn A. Murphy

• Publisher: For Dummies
• Year: 2018
• ISBN:
  9781119543978
• Edition: 2
• Topic: Law
• Subtopic: Estates & Trusts Law
• Index: Law

Estate and Trust Administration For Dummies, 2 nd Edition (9781119543879) was previously published as Estate and Trust Administration For Dummies, 2 nd Edition (9781118412251). While this version features a new Dummies cover and design, the content is the same as the prior release and should not be considered a new or updated product.

Your plain-English guide to administering an estate and/or trust

As more and more of the population reach senior ages—including baby boomers, many of whom do not have wills—an increasing number of people are being thrust into the role of executor, administrator, personal representative of an estate, or trustee of a trust after the death of a loved one. This updated edition of Estate & Trust Administration For Dummies guides you through the confusing process of administering an estate and/or trust.

Settling an estate and administering a trust can be complicated, messy, and time-consuming for individuals named as executor or trustee, most of whom have no previous experience with such matters. Estate & Trust Administration For Dummies shows you how to make sound decisions for your unique circumstances.

• Guides you through the confusing process of administering an estate and/or trust
• Provides expert advice on unfamiliar estate and trust tax law
• Gives you a practical checklist to follow for all of your estate and trust administration questions and concerns

Whether you're looking for guidance on how to navigate the probate process and estate taxes, settle debts and bequests, fund a trust, comply with tax regulations, or anything in between, this hands-on, friendly guide takes away the mystery and provides detailed answers to all of your estate and trust administration questions.

Part 1

Getting Started with Estate and Trust Administration

IN THIS PART …

Find out what’s involved in being an executor, administrator, personal representative, or trustee, including the terminology, who’s who, and the basics of your responsibilities.

Discover the difference between what constitutes an estate for probate and for estate tax purposes, what to do if there is — or isn’t — a will, and how to figure out who can inherit.

Get up to speed on the different kinds of trusts, how to identify them, and their purposes.

Start assembling your administration support team, if necessary, including attorneys, accountants, and other experts.

Chapter 1

Operating in a Fiduciary World

IN THIS CHAPTER

Becoming comfortable with the terminology surrounding estates and trusts

Encapsulating estates and taking care of trusts

Preparing and filing tax returns for trusts, estates, and decedents

You may have known for a while that someone close to you has named you as the executor of his or her will, as the trustee of a trust he or she’s created, or even as both. That knowledge may make you feel extremely honored while that person’s alive and kicking and still able to look after his or her assets.

Those warm and fuzzy feelings may come crashing to a halt, though, the day you hear that your friend has passed away, and you’re now in charge of the show. All eyes will be on you as you pick up the reins and try to keep this buggy called an estate or trust moving along at a steady clip, while keeping all the promises written down during your friend’s lifetime. The responsibility is huge, but so is your potential satisfaction, as you honor his wishes after he is no longer around to appreciate your actions.

This chapter is a jumping-off point for understanding what an estate administrator or trustee actually does: assumes control of someone else’s affairs in a way that’s both sensitive to family dynamics and responsive to family needs. Mishandled, estate and/or trust administration can cause permanent family rifts; on the other hand, competent and careful management helps keep family memories happy and purpose intact.

Identifying the Players

Administering a trust or estate isn’t rocket science, but it does have its own language. One of the biggest stumbling blocks you run across, especially as you’re beginning in your new role, is figuring out who all the players are and what roles they all play. The following sections point out some important basic lingo you need to know as you start your journey. Refer to the other chapters in Part 1 for more on your responsibilities as an administrator or trustee.

Determining an estate’s fiduciaries

Several kinds of fiduciaries (people or organizations who hold and administer assets of one person, either living or deceased, for the benefit of that person or another) may be involved in estate administration, depending upon whether a will exists and who the heirs are. You may not even be the only fiduciary; in that case, you and the other(s) must act in unison. And one person or group can fulfill multiple fiduciary roles, such as when one person is named both executor and trustee. The following are types of fiduciaries you may be named:

• Executor: The executor is the person named in the will to “execute” the will — to carry out the wishes of the person making the will, including disposing of the property according to the will. A female executor is sometimes referred to as an executrix, although we don’t make that distinction in this book. A named executor may decline to act, although we hope this book gives you the confidence to embrace the role.
• Administrator: The administrator is a person appointed by the probate court to administer the decedent’s estate when the decedent left no valid will. A female administrator may be referred to as an administratrix.
• Personal representative: The personal representative is a general term for both the executor and the administrator. In some states, this term is used in place of executor or administrator.
• Guardian: A guardian is the person appointed by the probate court to take care of the person and the property of another person who is considered incapable of taking care of his or her own affairs because of his or her age (often a minor) or for other reasons such as mental disability, physical incapacity, or illness.
• Conservator: A conservator is similar to a guardian, but with less restrictive rules than those for a guardian. For example, the probate court may appoint a conservator for someone who can’t properly care for his or her property due to mental disability or physical incapacity, or for a person missing in action or a prisoner of war.
  

  A probate court rarely appoints a conservator for an estate, especially if you’ve already been appointed as executor or administrator; however, you may find yourself dealing with an already-appointed conservator of an estate beneficiary. Remember, just because you’re all working with the same set of assets doesn’t mean that you belong to the same team. As executor or administrator, you’re only responsible for the property owned by the decedent; a beneficiary’s conservator is responsible for that beneficiary’s interest.

Knowing who the trustees are

A trust, just like an estate, must have a fiduciary heading up its team: in this case, a trustee. The trustee of a trust is charged with the task of investing the trust’s assets and balancing the desires of the trust’s creator (the grantor, also referred to as the settlor) with the needs of the beneficiary of the present interest (the person or organization entitled to receive the income earned by the trust’s assets. Depending on the terms of the trust, perhaps some or all of the trust assets themselves) and the wants of the remainderman or remainder beneficiary (the person or organization who receives what’s left of the trust’s assets after the trust period ends). It may sound daunting, but when done properly, everyone should go home happy.

Because balancing these competing interests can be complicated, many grantors choose two or more individuals and/or corporations to act together as co-trustees, jointly filling these roles, assigning general powers to all and sometimes specific additional powers to certain trustees. In order to differentiate between the trustees, trustees often are designated as either independent or family. This section discusses these two types of trustees. Chapter 3 goes into more depth about the different types of trusts.

All by themselves: Independent trustees

Independent trustees, or fiduciaries who aren’t named in the trust as either grantor, beneficiary, or remaindermen, can be an important cog in keeping the wheels of a trust running smoothly. Whether they’re trusted friends of the grantor or are banks, trust companies, lawyers, or accountants, independent trustees owe their primary allegiance to the grantor, who is relying on them to make decisions that best serve the interest of the trust, rather than that of any present interest beneficiary or remainderman.

Frequently, grantors direct an independent trustee to make all decisions regarding discretionary distributions to beneficiaries, especially if one of the trust beneficiaries is also a trustee. And, in the case of testamentary trusts, the probate court often delegates the power to make discretionary distributions to the independent trustee alone so as to remove any semblance of self-serving from a trustee who also has a beneficial or remainder interest in the trust.

For example, one of us acts as trustee for a testamentary trust where the decedent’s widow (who is the income beneficiary) and two children (the remaindermen) are also trustees. Only the independent trustee may make decisions regarding distributions of principal to the widow or the children. Distributions to the children prior to their mother’s death require either the consent of the independent trustee or the probate judge.

No independent trustee assumes the responsibilities lightly. As a result, expect to pay for their services, unless the independent trustee is a close friend of the grantor, who may be willing to perform this service out of long friendship and the goodness of his heart. Banks and trust companies most likely have pamphlets that list how they calculate their fees; because they probably have active custody of the trust assets, they usually collect their fees automatically from the trust. Non-institutional professional trustees such as attorneys and accountants bill you for their services. They may charge based on their normal hourly rates, but they’re more likely to calculate their fees based on a percentage of the market value of the assets of the trust, as well as a percentage of income collected.

Trusts that mandate an independent trustee typically also include a line of succession so that if one trustee is no longer able to act, another is in line to take his or her place. If the trust requires an independent trustee, make sure that any vacancies are filled promptly because it’s next to impossible for the trust to function efficiently without one in place.

All in the family: Family trustees

Trust grantors often feel that using only professional trustees (as efficient as they may be) may not account for special family circumstances. In these cases, the grantor may choose to also have a family trustee, or a trusted member of his or her family, who knows the players (the present interest beneficiaries and the remaindermen) well and has no difficulty making decisions based on the grantor’s wishes.

Family trustees usually have most of the same powers as independent trustees (such as investment powers and the authority to prepare and sign income tax returns and to make scheduled distributions to present interest beneficiaries), but their powers over discretionary distributions are often limited if they have a vested interest in the trust as a present interest beneficiary or remainderman.

It’s possible for trusts to exist with only a family trustee, although the results are sometimes messy. Somehow, wherever money is concerned, perceptions of appropriate behavior on all sides tend to skew; in our opinion, you’re far better off to limit opportunities for self-serving during trust administration by never allowing a family trustee to serve alone. With the addition of an independent trustee, everyone concerned — from the grantor to the present interest beneficiary to the trust remaindermen — can be confident that all the competing interests were considered throughout administration and that the trustees made appropriate and fair decisions.

Another bad idea: having family members be sole trustees of a trust established for their benefit. Unless the trustee/beneficiary is only entitled to mandatory distributions of all the income annually (and principal distributions made under very limited circumsta...