The Trust Administration Process

Paul: Hello everybody! We’re starting the webinar here, I am going to let my partner in. Kraig are you on there? Kraig? 

Kraig: I’m here.

Paul: Let me see, I don’t see you yet, so log in, we’re waiting for Kraig to get in, okay, hang on.

Kraig: Yep, there we go I see it live we got it working.

Paul: All right I’m hanging up the phone. Okay, Kraig are you there? I’m waiting for your video, jump on let’s get started here.  I want to welcome everybody to this edition of Wealth Protector TV and very excited to be jumping in here and talking about your trust process and so what’s going to happen here is, I’m going to let Kraig on here in a minute and this is our channel where we have, let me get, Kraig on here make a co-host okay so, Kraig are you there? 

Kraig: I am, good morning. 

Paul: Okay there you are, all right, and we get to see the exciting vehicles in the background there, so yeah jumping into this, Wealth Protector TV. I’m Paul Hitchcock. This is my colleague Kraig Strom, paralegal of Barth Calderon, and Barth Calderon is an asset protection, estate planning, and business planning firm, located in Orange County California. We’ve been around for over 40 years. We have 5 000 clients across the country, we put on about 40 workshops a year to incredible groups such as Vistage International, The Women Presidents Organization, and many others. And our whole mantra is giving back value, we just want to teach and educate, and inevitably when we put on these workshops we’ve got questions that pop up and if you want to get one on one with our team for a complimentary assessment maybe, for your own scenario or maybe you’re advising others, doesn’t matter asset protection, estate planning, business planning. I’m going to put up a way to do that in a link, you can email me, I’ll put it up in the chat, I should say, so look for that and Kraig, let’s jump into this, the trust administration process gives us an overview and then we’re going to get into the nitty-gritty of it.

Kraig: All right. Good Morning! so, yes, the trust administration process is in a nutshell, the process of settling up the estate of someone who died. Really that simple, that, it gets a lot more complicated but, the simple answer is, someone passed away, they might own a home, cars, bank accounts, IRAs, life insurance. Settling up all of those things means, getting those assets to the people or the causes, the non-profit organizations that the deceased person really wanted those things to go to. That is trust administration and managing that whole process. 

Paul: So, this is obviously you know a family setting up a living trust, while they’re alive, and I want to mention at this point because we talk about this often you know, a living trust as we get into the trust settlement process is, if you want to avoid probate which is the court system, where the courts step in and start handling things for you, you know during your life or you know after you pass away. If you want to avoid that, we all do, that’s a heinous process, expensive, time consuming and can be contentious and it’s a public process you need to set up, your living trust, a living trust avoids probate, a will by itself does not so, I want to just mention that up front and we’ll also say that every family has some sort of an estate to manage and the state is everything you own your houses, your cars, your retirement accounts, bank accounts, you know businesses, property, all of that. Doesn’t matter, the value of it, that’s your estate, and so getting the living trust in place is you, being the director of your own play and taking control and doing it, rather than the court stepping in so, we’re going to just go with that living trust important so, let’s get in Kraig to the process of the trust settlement, because it’s a big deal when people are named as a trustee and you’re going to talk about that naming, the trustee there’s a fiduciary responsibility it’s a huge deal it’s not to be taken lightly, most people have no idea what it’s all about and how to settle a trust so, let’s start off, hit me with bullet point number one, what are we talking about?.

Kraig: That is exactly where we’re going to start is, trustee selection, because like you said Paul hopefully, your family member has actually set up, a full comprehensive estate plan, a revocable living trust and all the different pieces that are in that legal toolbox, to allow your representative called the trustee, when you’re gone the successor trustee, to take care of your assets and get them to the people and the places that you want them to go so, trustee selection is the number one most important thing. I remember, years ago, someone asked, if they could put their sister in, as the successor trustee and of course yes, you could choose whoever you like and then she said well, my sister lives in New Zealand, well, that might be a little problematic, getting to the U.S and being able to deal with settling your estate. So, the suggestion from our attorneys was, you might want to choose someone a little closer to home. 

Paul: Right. 

Kraig: So, selection of trustees is important.

Paul: And the trustee can be anybody?

Kraig: Right, you can actually, depending on your situation, you might choose a professional trustee, that happens where we at the firm have trust administration services to manage the process, you can choose a CPA, you can choose a friend, you can choose a sister, brother, mother, uncle, grandfather. Choosing the trustee though, is very important from another perspective, because even with an estate plan, it can be a daunting task, to settle up all the different little pieces of an estate so, you want to have a choice, maybe a choice of someone who is really good at managing and organizing things and keeping track of all those details. 

Paul: Yeah! 

Kraig: That’s important. 

Paul: Well yeah, and the professional trustee I’ll mention that, because it comes up a lot, and you know where that may come up is if, first of all if you don’t have any children right, that you want to name as the trustee and you’re single, maybe you aren’t married never were married or maybe your spouse has passed away and now you need a trustee to step in for you, after you know, after you pass away or during your life and also if you even, if you do have kids and the kids are not on the same page.

Kraig: Yeah, they might be butting heads. 

Paul: Yeah, that happens a lot, and you know, you don’t know who to name as the trustee, and it could break up the family, this is where you put your professional trustee in place, like Kraig said, we do that and the professional trustee kicks in, when needed, you know when the life events happen, where they need to step in and carry out your wishes, exactly as you want them to happen, so it’s not them making decisions for you and trying to figure out what do you want to do, they’re actually doing exactly what you spell out so, I just wanted to reiterate. 

Kraig: You really like, Paul said earlier you’ve really written the script and the trustee is just, let me continue by saying this, that, I don’t want to, I don’t want to scare people about the idea of trust administration with a good comprehensive estate plan, that’s nice and organized, settling up the state the estate is not, this grueling process. However, it can take as many as 12 to 18 months just to get all the things situated. So, that’s where the very first tip that I’m going to suggest or step. If you will, in settling up a trust and handling that administration, is to be organized, to keep notes, to make sure that everything is in writing. I spoke to someone recently who said that me, and my brother and my sister we’ve been talking about this well, that’s great, have you done any emails, have you written it down, it’s important to keep that trust administration in writing with the appropriate disclosures to the beneficiaries, the people that the trustee is working for.

Paul: Kraig, when you say write it, when you say, keep it organized, write it down, write what down? keep what organs?

Kraig: Well, that’s great so, this is where the next step comes in, gathering up all the assets, that doesn’t mean grabbing mom’s you know, collection of this or that, it means putting the assets in order so, we have a piece of real estate, we’ve got some land out in Nevada, we’ve got a home that we own, the bank account organizing. All of the assets that are under that umbrella of the estate, making sure that accounting of all the assets is in writing, making sure that communication is in writing.

Paul: Yeah, okay, no, good, good tip alright. yeah! 

Kraig: Next step, once you’ve gathered up all the assets, you need to verify whether or not those assets are already titled, in the name of the estate plan, that’s a big deal with regards to real estate especially so, when we create a revocable living trust, one of the things that we do very first part of the steps after creating the trust, is make sure to change the title, of real estate whether it’s the primary home or a vacation home or a rental home into the name of the new estate plan. So once, you have all the assets listed out, now you can verify whether or not those assets are actually included in the plan already, just by the title of the account at the bank for example so, being able to organize all of the assets into, are they in the estate plan already or are they outside the estate plan, that’s a big step to really identify okay, what do we need to do next.

Paul: Great! hey I’m going to  jump in Claire, has her hand up, Claire if you want to type a question in the chat, would be great and we will get to it and I should mention that to any, everybody who’s on here who’s got a great audience here, type your questions in the chat, we’ll address them, as we go through this, we just want this to be interactive, alright Kraig so, picking the trustee important and?

Kraig: Getting all those assets laid out, making sure that we know what we’re dealing with, right.

Paul: Right. 

Kraig: And then the next piece right, and this is going to tie into identifying those assets, this is one that’s often missed until late in the process so, it’s very important is, you’ve identified the assets in that list of assets, is there a bank account in the name of the estate plan, many times we see the primary residence is properly titled in the estate plan however, mom and dad or auntie or uncle or grandma, grandpa forgot to put their bank account in the name of the estate plan, the reason this is important is that, if we’re going to sell assets let’s say we’re going to sell dad’s collector car, we’re going to sell a house, the proceeds from those assets need to be gathered up into a bank account in the name of the estate plan so, that it can be organized for future distribution to the beneficiaries. We want to make sure that one of those bank accounts perhaps maybe there’s multiple accounts, but make sure that we have one of those accounts set up, in the name of the estate plan. It can gather the proceeds from the sale of anything that we might sell, as we wrap up the estate, does that make sense?.

Paul: Yeah, no that’s great, okay, all right, you’re mentioning that funding the trust was key because we see that so many times where. 

Kraig: Oh yeah. 

Paul: People even have a living trust but, they don’t fund it and then a piece of something ends up in probate, maybe they you know, did a 1031 exchange for the property and they didn’t retitle the new property, we got a lot of rental property owners as clients so that happens a lot. 

Kraig: Yes, or they refinanced a property and the mortgage company made a big mistake and did not get the property titled back into the estate plan, happens all the time especially in the last five to ten years, with the rates mortgage rates and people refinancing, you know, like back and forth, it’s crazy. So, it’s important to make sure that is  taken care of so, once you have a bank account, what if you don’t, have an account well, then you do go to the bank with the copy of your estate plan that you’re working on for the benefit of that family with death certificates and such and you’re able to then open a bank account in the name of the estate plan that is that next step you’ve got to have a Place where the proceeds from any asset sales will go, that can be then distributed in the future so, you would open a bank account in the name of the trust. 

Paul: Got it! All right, let’s move on to the next point. 

Kraig: Yes, another quick step is identifying any debts that need to be paid, on behalf of the estate, now, that is a deeper conversation that we won’t go far into that today that is just to say there are some debts that might need to be paid off, on behalf of the deceased, and that’s something you really should review with an estate planning attorney, for example just to go through the details on that but that’s important to note. 

Paul: Okay, okay so, we’ve got identified debts okay. 

Kraig: Right! 

Paul: Yeah! 

Kraig: Now, retirement assets right inevitably, we see a trustee having to deal with, what do we do with mom and dad’s IRA or 401k or roth IRA well, that’s very important, these are often accounts that have deferred income taxes so, this is a situation where a CPA or a tax accountant should be part of the conversation, again not a deep dive today but also, not something where the trustee should just wade right in and cash out IRAs and 401ks because the taxes will have to be paid and it’s important that you have a consultation with an accountant to make sure you know who’s supposed to be paying the taxes and exactly how much so, really be mindful of that there, that’s one of those asset classes that should not just be quickly run through, it should definitely be checked on. 

Paul: Okay.

Kraig: Yeah, that’s an important one there, we had one recently, that oh my goodness, glad we stopped and checked with the CPA, would have cost two of the siblings a lot of money.

Paul: And Kraig on the retirement accounts, because you can put beneficiaries on there, do you put the beneficiary as an individual person or as the living trust? 

Kraig: No, great question, that is a, a maybe and or yes it’s a good idea right so, I say that just with a smile that in many cases if let’s say the kids, brothers and sisters etc. are all good solid out on their own earning, an income it may be a good idea to have, the children listed as individual beneficiaries on the retirement account or on the life insurance, for example  in some situations where minor children under 18 might be listed, that might be a good idea to list the living trust, the revocable living trust as a successor backup beneficiary and then it can be processed through the estate. 

Paul: Okay. 

Kraig: It’s a great question. We really like to see adult children labeled and listed as individual beneficiaries, it makes it so much easier when distributing life insurance and IRAs and things like that, but not, it’s not a hard-fast rule. 

Paul: Got it, okay, next point, what are we jumping into now?

Kraig: Reporting to the beneficiaries. This is an important item, I’ve seen this many times, where the trustee of an estate plan the successor trustee kind of believes that they’re in their own autonomous bubble and they don’t realize that, the trustee position, is a fiduciary position meaning you have a personal obligation to the beneficiaries of the trust that you are administering, you have an obligation to act on the best in the best interest of those beneficiaries, part of that, means reporting to the beneficiaries. That’s where I had said that in writing, is very important being able to email brothers and sisters and various beneficiaries to give them an update on the status of the trust administration, making sure that there’s an open line of communication, but keeping it in writing and that you’re not missing the fact that your job is not to settle the estate for just, for settling the estate sake it’s on behalf of the beneficiaries that’s a very important piece.

Paul: Yeah and our and our friend Kraig you know our good friend Lynn Schmidt put in the chat and it’s a great point that enrolled agents in addition to CPAs are fantastic resources to work with. 

Kraig: Oh yeah.

Paul: Trust settlements. 

Kraig: So, absolutely and good morning Lynn!

Paul:  Hello, Llynn out there from, Florida. 

Kraig: Yeah out in Florida and gator country but, Lynn brings up an excellent point, that really should be emphasized that, there are some tax snafus in trust administration, there are for the trustee, the trustee is personally obligated to the beneficiaries, really seeking out an enrolled agent, a tax preparer would be a great idea, I had someone just yesterday, was doing their own brain surgery, air quotes  settling up a family estate and I suggested no, no you really should consult with an accountant to make sure that you get it right because your job is to work on behalf of the beneficiaries and you want to make sure it’s right and can’t be stressed enough to do everything in writing and really be transparent with it. 

Paul: Yeah and it’s, it’s a great example, I’ll reference Lynn again because you know we worked on some joint cases together with Lynn and it’s just a really great relationship, you know when you have the legal people in sync with the accounting people like Lynn fantastic it all runs smoothly you’re all on the same page so,  very good, what are we jumping into next? 

Kraig: Well, this is where we actually now get to distribution time, right so, there’s many little nuances along the way, dealing with real estate advisors but, when it comes to distributions one of the primary distributions, meaning sending the money out that is missed, is that the trustee in most estate plans, it is accepted and even built into the estate plan that the trustee is allowed to be compensated for the work that they’re putting in, you heard me say earlier that this could be a 12 to 18 month process to wrap it up.

Paul: Right. 

Kraig: It’s a lot of work so, the trustee can definitely be compensated on a reasonable level for travel and gas and meals etc. and as long as that is documented properly in the distribution reporting, no problem, okay, but now when we get to time to actually send out payments to the beneficiaries that’s after everything has been sold all of the knickknacks and everything has been sorted out we’ve kept a good list of who gets what, now it’s time to send out checks for example, checks to beneficiaries that’s a simple process and in many cases it involves a trustee, writing a check to brother or sister or niece or nephew to finalize the estate, one good piece of advice that I’ve heard many times from our attorneys and other attorneys and financial planners is to be prepared to leave a certain amount of cushion, a few thousand dollars in the trust account just in case. 

Paul: Absolutely.

Kraig: Something pops up we’ve heard this many times where, a property tax bill, rolls in on a piece of real estate three months, four months, six months later and there’s a property tax bill to pay, having a little cushion there that has been reported to the beneficiaries letting them know we’re holding five thousand dollars, just in case is a great idea to kind of just, be ready for any miscellaneous loose ends so, that’s where we’ll wrap it up today I think is just we get to that distribution phase, keep it in writing and remember that as a fiduciary trustee your job is to work on behalf of the beneficiaries brothers and sisters, aunties or uncles you got to keep it in writing and have full transparent disclosure. 

Paul: Yeah, no, these are all great points Kraig and that one point you made about, keeping money set aside, especially with property is so important and I’m just thinking of recent cases where exactly what was going on, cases that we were involved with, and you know because a lot of times we see a lot of cases, where an elderly parent is moved out of the home into an assisted living facility, the home is rented to help pay for the care of the parent and then,  then after you know, the parent moves on the property is sold, but there could be you know, some costs involved in, you know whatever, whatever that is so, have the funds set aside.

Kraig: Absolutely. 

Paul: Yeah Claire had her hand up there, did you see did we get a question from Claire? 

Kraig: Yeah I asked Claire, Claire if you want to type something in I didn’t see anything in there, in the chat but yeah, if you want to follow up with us, let us know and again email me, my email is in chat there, I’m going to put it up right now, paul@barthattorneys.com and if you want to get one-on-one with us complimentary, leave the checkbook at home, we just want it, we want to make sure that you’ve got information to help yourself get organized updated and protected and remember every Thursday at 9 00 a.m we do this live show for barth Calderon on different hot topics that are going on issues we’re dealing with, there is just a massive changing landscape right now, new laws coming out of Washington. You know, now they’re voting on stuff we’ve had some new laws that have been passed in California. We got Prop 19,  which deals with rental property and other you know, other properties so, there just is a lot going on and so keep in tune with us follow us get connected to us and we’re just we’re just constantly giving out information, and Lynn thank you for the nice comments and we’re going to get Lynn on here, on one of our Wealth Protector TV shows, dive deep into taxes, one of these days so, thank you everybody Kraig, thank you very much and we’ll see everybody next time

Kraig: Got it, take care everybody. 

Paul: All right.