What Is Trust Administration?

A settlor can transfer assets into a trust when they are living (a living trust) or upon their death (a testamentary trust). In either case, when the settlor dies, the trustee handles the trust administration process, often with the help of a trust administration attorney.

You might find yourself as the beneficiary or trustee of a trust in the event a family member or loved one dies. For example, if a parent dies while their child is still young, they might leave monetary funds in a trust. These funds will be cared for by the trustee in the name of the trust until the child is old enough to receive the funds.

In short, a trust provides a space for someone's assets to be cared for by a third party. These assets can include real estate, bank accounts, IRAs, and personal property. In many cases, trust administration starts as soon as the trustee obtains the decedent's death certificate.

Trustees, Beneficiaries, Settlors

In trust administration, there are three key players: trustees, beneficiaries, and settlors. Each role is connected to the trust property in some way, but they each play very different roles.

Trustees

Once a trust agreement is created, the trustee has the most time-consuming role. The trustee's job is to hold, manage, and administer the funds in the trust on behalf of the decedent's estate. Their fiduciary duty as a trustee requires them to act in the best interest of the beneficiaries of the trust.

The duties of a trustee are laid out in the terms of the trust document. While these duties may vary depending on the type of trust, some tasks are common. The first thing a trustee must do is have the trust property identified and evaluated by a property appraiser. The trustee is in charge of asset protection and trust accounting. The trustee is also responsible for distributing the trust's funds to the beneficiaries. 

While the assets remain a part of the trust, the trustee is responsible for any investments that are made, managing real property included in the trust, filing income tax and estate tax returns, and applying for federal estate tax exemptions.

There are several kinds of trustees:

• Charitable trustees manage funds left in a charitable trust and follow the instructions left by the creator of the trust.
• Investment trustees manage the day-to-day operations of an investment account, helping it to grow over time.
• Successor trustees are people who step in to manage a trust when the original trustee is unable to do so through death or incapacitation.
• Corporate trustees work with large firms that manage trusts for clients in return for being paid.
• Bankruptcy trustees step in when a person or business declares bankruptcy and their assets need to be administered. These trustees are appointed by the U.S. Bankruptcy Court.

Each type of trustee, no matter their specific role, is responsible for trust administration and the distribution of assets. Some trustees work voluntarily, often in the case of a family trust, while others are paid for their trust administration services.

Beneficiaries

A beneficiary is a person or entity that benefits from a trust, will, life insurance policy, or retirement account. When a settlor leaves funds to a person, it is often a way to financially take care of that person after the settlor's death. Sometimes trusts are created because the beneficiaries are minors at the time of the settlor's death and are unable to manage the funds on their own.

Settlors can also leave funds to a charity organization or nonprofit. This ensures financial assistance for a cause the settlor cared about in their lifetime.

Leaving a set list of beneficiaries and instructions on a trust helps to avoid any contestation in the event of the settlor's death. Creating a trust also helps to avoid the probate process. It is important to note that some settlors allow trustees to distribute assets unequally to beneficiaries at the discretion of the trustee. This can certainly lead to a legal dispute in court.

Settlors

A settlor is a person who creates a trust. There are many reasons a settlor creates a trust. It may be to avoid any family contesting assets after the settlor's death. It may also be to provide funds for a charitable organization. The settlor might create a trust to simply avoid the complications of probate court.

Settlors are in charge of choosing the trustees and beneficiaries of a trust. The settlor is not normally able to be a beneficiary of the trust. However, a settlor can be listed as a trustee tasked with handling the assets on a day-to-day basis until their death.

Trusts vs. Wills

A trust is a fiduciary arrangement that can be created while you are alive. A will is a legal document that takes effect after you die. The person who handles the estate administration of a will is called the executor or personal representative. In contrast, the person who manages the assets of a trust is the trustee. Finally, wills must typically go through probate court, whereas trusts do not.

Trustees vs. Power of Attorney

When you give someone power of attorney over your finances, you are giving them the power to make decisions for you if you become incapacitated.

The main difference between a trustee and someone with power of attorney falls in the decision-making process. A trustee may have the ability to make decisions in the day-to-day, such as when investing the funds within the trust, but the settlor lays out the duties of the trustee very clearly in the trust.

This can include specific amounts of funds for specific beneficiaries, goals for the assets within the trust, and more. A power of attorney has a bit more flexibility in the decisions they are allowed to make.

Power of attorney, unlike the role of a trustee, can go beyond finances. Some people appoint a medical power of attorney which gives an appointed person the power to make decisions on behalf of another if they are no longer able to make medical decisions for themselves.

When Trust Administration Is Needed

Trust administration takes place when the settlor of a trust dies and estate planning is necessary. Trustees must notify the beneficiary of the shift within the trust after the original settlor has passed. With the settlor no longer around, the trustees are tasked with upholding the trust and working in the beneficiaries' best interest.

If you require trust administration, either as a settlor or as a trustee, consider getting legal advice from a local estate planning attorney. Alternatively, you can visit FindLaw's Estate Planning section to learn more about the pros and cons of both trusts and wills.