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What Am I Supposed To Do as the Trustee of a Trust?

After someone passes away, there are several things that a trustee needs to do to make sure that a trust is administered properly. In order that the successor trustee doesn’t miss any steps, I always recommend seeking the advice of an experience attorney to assist them in the process. In addition, I recommend that successor trustees meet with a trust attorney and his or her other advisors as soon as possible after a loved one passes away. Depending on the type of trust, there may be deadlines to make certain tax and other elections that need to occur within a certain time frame after the trust creator’s death. Obviously, it is important to be sensitive to the family, but, in general, I recommend meeting with the successor trustee within 30 days after the family member’s death.

What Will Happen at the Initial Meeting with the Trust Attorney.

In the initial meeting with the successor trustee, I educate the successor trustee about the many duties and responsibilities of serving as a trustee. In general, I cover the following items in order to make sure that the successor trustee understands his or her duties:

  1. Review Trust Documents. First, I review the trust itself, and any amendments to the trust, carefully to determine who the successor trustee is, what the distribution provisions are, and if there are any other important provisions in the trust that affect the administration of the trust. In addition, I also review the decedent’s will to make sure that it is a “pour-over” will that works in conjunction with the trust.
  2. Discuss Fiduciary Responsibilities. Second, I discuss the role of the successor trustee with my client. Often, if the successor trustee is also a child of the trust creator, the child may also be a beneficiary of the trust as well as the successor trustee. It is important to note that the successor trustee acts in a fiduciary capacity for the benefit of all of the beneficiaries of the trust, and cannot act to benefit any one beneficiary or group of beneficiaries to the detriment of other beneficiaries. In addition, the successor trustee is responsible for making sure that valid debts of the trust are paid by the trust if there are sufficient funds to do so. Finally, unless an agreement is reached between the beneficiaries of the trust to the contrary, the trustee is required to follow the terms of the trust, including any amendments to it, as written.
  3. Discuss Assets and Liabilities. At the initial meeting, I also attempt to obtain a complete list of all of the assets and liabilities of the deceased person and of the trust. Sometimes the successor trustee will need to complete this list after the meeting if he or she does not have all of this information yet. Typically, I ask for a list of the assets owned by the deceased person at the date of death, how these assets are titled, and date of death values for each of these assets. For bank accounts and investment accounts, the successor trustee also needs to know whether such accounts have payable-on-death (“P.O.D.”) beneficiary designations. For 401(k)’s, IRA’s, annuities, and life insurance policies, the successor trustee must know the beneficiary designations for these assets. Next, for all of the assets, the successor trustee must obtain an account statement, deed, certificate of title, or other ownership document to demonstrate how such assets is titled. Finally, for any of liabilities, including mortgages, car loans, credit cards, or other debts, the successor trustee should locate the latest statements, so that he or she has a clear picture on the liability side too.
  4. Discuss Tax Issues. Next, I discuss possible estate tax and income issues regarding the trust estate. The scope of the tax issues is beyond the scope of this blog, but will be covered in another blog in the future.
  5. Determine Whether a Family Distribution Agreement is Needed. The successor trustee must also understand the family dynamics. Who are the beneficiaries? Is anyone likely to object to your serving as the successor trustee, to the validity of the trust, or to the distributions set forth in the trust? Are any family members excluded? Are there any rifts in the family? For example, sometimes, mom and dad wanted to exclude one child for their own reasons, but the siblings get along fine and want to make sure that all of them are treated equally in the distributions. Alternatively, sometimes one or more of the siblings are well off in comparison to their siblings and agree to redirect their share to a less fortunate sibling. Finally, sometimes one of the siblings has become incapacitated and can no longer receive a distribution without affecting his or her governmental benefits. In all of these cases, if all of the applicable beneficiaries are in agreement, they may want to do a family distribution agreement to change the distributions from the trust.
  6. Discuss Notices and General Trust Administration Process. Finally, the successor trustee must send out certain notices need to the beneficiaries under A.R.S. § 14-10813(B) to let them know that the successor trustee is now serving as the trustee of the trust and to let them know their rights to certain information as required by Arizona law.

In order to assist my clients and help them understand all of the responsibilities of a successor trustee, I typically send each of my successor trustee clients a detailed instruction letter outlining all of their duties and responsibilities.

What Are the Steps After the Initial Meeting?

Obtain a Tax ID for the Trust. After the initial meeting, the successor trustee will need to obtain a Tax ID number for the trust and open a trust checking account if one has not already been opened.  I typically help my clients obtain this Tax ID number online.  Please note that the bank will not let you set up a bank account in the name of the trust without it.

Complete List of Assets and Liabilities. In addition, after the initial meeting, the successor trustee will need to compile a complete list of all of the assets and liabilities of the trust (or that should go into the trust). Moreover, the date-of-death values are important for purposes of determining whether the trust is subject to federal estate taxes, establishing the new stepped-up income tax basis, and assisting the successor trustee in the distribution process from the trust.

Deal with Creditors. Next, under A.R.S. § 14-6103, it is possible to shorten the statute of limitations for claims against the trust by publishing a notice to creditor’s according to this statute. Similar to the procedure in probate cases, this publication has the effect of shortening any statutes of limitations for any unknown claims to 4 months from the date of first publication. Like probate administrations, I always recommend that my clients “close the door” on any potential claims against the trust after this deadline by publishing according to this procedure.

“Administer” the Assets of the Trust. During the 4-month creditor period, the successor trustee can administer all of the assets of the trust according to the terms of the trust. By administering, I mean liquidate and deposit the funds into the trust checking account.  However, sometimes the beneficiaries want to keep certain assets in the trust and distribute them in kind. If mom or dad had a house that needs to be sold, then the successor trustee can list the house and sell it. If mom or dad had an investment account that needs to be liquidated, then it can be liquidated and deposited into the trust checking account. If an asset, such as a car, is in mom or dad’s name and needs to be transferred into the trust, it can be transferred though opening a probate case or a small estate affidavit, and then this asset can be sold.

Prepare Final Accounting and Make Distributions from the Trust. After the 4-month creditor’s claim period has ended, provided that all of the assets in the trust have been appropriately administered, then the successor trustee will need to prepare a trust accounting until the date of the proposed distribution. The accounting should list all of the administrative expenses and taxes that have been paid, and all of the anticipated administrative expenses and taxes yet to be paid and will typically include a “holdback amount” to take care of these final expenses. A.R.S. § 14-10817 provides that a successor trustee may send out a proposal for distribution and give the beneficiaries 30 days to object to same, or such beneficiaries waive their objection. If there are no objections to the proposed distribution, then the successor trustee can make the proposed distributions to the beneficiaries.

Termination of Trust. Finally, after all taxes and expenses have been paid, and all distributions have been made, I recommend having the successor trustee sign a Termination of Trust document. This Termination of Trust is the final document that the successor trustee signs at the end of the trust administration process.

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John Even

Our firm has helped hundreds of families just like yours handle a wide variety of estate planning, business planning, probate, trust, and elder law issues. When families or business owners are not getting along, we can also handle any disputes and litigation related to their businesses, wills, trusts, guardianships, or conservatorships. Please give me a call, so that I can help you work through these difficult issues with confidence.

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