You set up a trust to protect the people you love. Making sure it's administered correctly is how you keep that promise.
When a trust isn't handled properly, the consequences fall on your beneficiaries. The people you intended to provide for, like your children, may not receive what you planned. Meanwhile, creditors may end up with what you never meant them to have. Choosing the right type of trust and the right trustee makes all the difference.
At Hettinger & Robinson PLC, our estate planning lawyer in Kalamazoo listens carefully to your needs and understands the emotions that come with estate matters. We help construct and administer trusts that protect your assets and benefit the people who matter most. Call us at (269) 344-0700 to schedule a consultation.
What Is Trust Administration?
A trust is a legal arrangement with built-in instructions for how assets should be managed and distributed. The key players are:
- Trustor: the person who creates the trust
- Trustee: the person appointed to manage and carry out the trust's terms
- Beneficiary: the person (or people) who benefit from the trust
The trustee's job is to follow the trust's terms and act in the best interest of the beneficiaries. Trust administration often begins when the trustor passes away, though this depends on how the trust was set up.
How Is a Trust Administered in Michigan?
While the specifics vary by trust and jurisdiction, here are the key steps a trustee typically follows.
Know Your Trust
Before anything else, the trustee needs to thoroughly understand what they're managing. That starts with reading the trust document itself, then gathering supporting records such as:
- Bank statements
- Rental agreements
- Life insurance policies
- Certified copies of the trustor's death certificate
The trust document should clarify what additional records are needed.
Secure Trust Assets
Once the trustee knows what's in the trust, they need to secure those assets. This means:
- Verifying that assets are properly titled
- Taking a full inventory
- Determining the value of each asset
Trust assets can take many forms: life insurance proceeds, real property, investment accounts, and personal property like jewelry. The trustee will typically need to open a bank account in the trust's name to hold assets during administration and create a clear paper trail.
Notify Beneficiaries
All beneficiaries named in the trust must be notified. They need to know who the trustee is and what the trust says. Michigan may have specific deadlines for this notification, so it's wise to work with an estate planning attorney to stay compliant.
Notify Creditors and Pay Debts
The trustee identifies anyone the trust owes money to and notifies them. All claims should be reviewed carefully to confirm they're valid before payment. This includes funeral or cremation expenses.
Distribute Trust Assets
Before distributing assets, the trustee provides beneficiaries with a full accounting of the trust. If the beneficiaries agree with how things were handled, they sign off on the accounting. Then the trustee distributes assets according to the trust's terms. Some trusts give the trustee discretion over distributions; others are very specific. It all depends on how the trustor set things up.
Choosing a Trustee to Administer the Trust in Michigan
The trustee holds significant responsibility, so choosing the right person matters. A trustee is legally bound to follow the trust's terms and act in good faith. Here's what to consider:
- Time. Administering a trust is demanding. The trustee handles tax returns, property sales, record-keeping, creditor notification, and more.
- Skills. Does this person have the knowledge to manage financial and legal responsibilities? Mistakes from inexperience can be costly.
- Cost. Corporate trustees charge fees that reduce the trust's value. A family member might not charge a fee but may need to hire an attorney, which has its own costs.
Many people default to choosing a close friend or family member. But someone with the right expertise, even if it costs more upfront, can save your loved ones significant time and money in the long run.
Common Problems with Trust Administration in Michigan
Problems in trust administration usually trace back to one root cause: the trust wasn't drafted well. Here are the issues we see most often.
Beneficiary Death or Incapacity
A beneficiary may have passed away or become incapacitated since the trust was created. The trustee needs to verify each beneficiary's status before distributing assets. If someone can't receive their share, the trustee may need court guidance. This is why naming contingent beneficiaries is so important.
Irrelevant Provisions
Trusts that aren't reviewed and updated over time can contain outdated language that no longer applies. When this happens, the trustee typically needs to ask the court how to proceed, which causes delays.
Beneficiary Disagreement
Beneficiaries may disagree with the trustee's decisions, especially when the trustee has discretion over distributions. Disagreements can also arise when a beneficiary contests the trust's terms entirely. This can lead to litigation.
All of these problems cause delays. Delays are expensive. The best way to avoid them is to make sure your trust is drafted properly and kept current.