Administrating a trust post-death should be as easy as your successor trustee accepting the responsibility for the trust, taking control of the assets, satisfying creditors and following the trust’s distribution provisions. Unfortunately, we are seeing longer administration times, most of which could have been greatly reduced with minimal upfront planning. Recent examples we have encountered include a small foreign bank account, a rental property, retirement account without a beneficiary designation and a stock held in a street name. This post looks into the common causes of delays and offers some solutions to decrease the amount of time (and frustration) needed to administer your estate.
Cause #1: Lack of financial record keeping.
If the financial records of the deceased are disorganized or non-existent, the successor trustee must spend time investigating where assets are held before even getting started. This means pouring through mail, tax returns and potentially hiring a private investigator to identify assets. All of this takes time and has become more difficult with the advent of electronic delivery of financial statements and notices.
Solution: Keep better records. Prepare a list of assets, with approximate values and the primary contact for the asset. Or at least a copy of the annual account statement. The list should be reviewed annually and updated with any changes. Too complicated or too many to list? Then see cause 2 below.
Cause #2: Too many accounts and institutions.
As you accumulate assets over time, there is a tendency to also accumulate several different account types at several institutions. Trying to identify the institution and the account title and sorting through each account to determine whether it is owned individually or jointly or by the trust or has a beneficiary designation takes time. Each institution has its own forms and may not disclose information to the successor trustee if the account is titled in the deceased person’s individual name.
Solution: Consolidate accounts. There are many different account types and purposes. Checking, savings, CDs, investment, retirement to name a few. There are also valid reasons for maintaining several similar type accounts. For example inherited money should be kept in a separate savings or investment account from the marital savings or investment account. However, there are often opportunities to combine similarly characterized accounts to facilitate administration of the trust.
Another Solution: Consolidate institutions. If it is impossible to reduce the number of accounts, consider moving them to one or two institutions. It is much easier to address 9 accounts at one institution than it is to administer 3 accounts at three different institutions. Each institution has its personnel, forms and procedures. Some institutions are knowledgeable and efficient and others less so. Reducing the number of institutions will significantly decrease the time (and potentially fees) of trust administration.
And Yet Another Solution: Create a manager managed LLC owned by your trust that is disregarded for income tax purposes. For instances where there are a variety of assets, it is helpful to have all those assets held by one entity. Upon death, the management of the LLC is easily changed without the need to transfer ownership of the asset. In some situations, this can be preferred when the management of the assets will be needed post death.
Cause #3: Improper titling.
This is the most frequent cause of delays we see. Assets held in your personal name are not automatically transferred to the trust at death and a financial institution or title company may require your heirs to open a probate at death to transfer the asset. While not overly difficult, probate adds to the amount of paperwork, time and fees necessary to get the asset transferred into the trust.
Solution: Transfer all assets to the name of the trust, now. Not tomorrow or next year or when you get older or sick, today. By transferring assets to the trust, the trustee may take control of that asset upon presentation of a death certificate and a signed acceptance as successor trustee. For more information on how to fund trusts with a variety of assets see Funding Your Trust.
Another Solution: There are a few assets that may not be titled in the name of the trust. Retirement accounts for example. For these types of accounts, you just need to confirm that they have a properly completed beneficiary designation. Whether to name your heirs individually or the trust as the beneficiary just got a little more complicated with the recent enactment of the SECURE Act, which limits the ability of the beneficiary to stretch out the distributions and defer the income taxes over their life expectancy. For more on the Secure Act see Secure Act Impact on Trusts.
And Yet Another Solution: Be consistent. We see accounts in under your maiden name, your ex-spouse’s name, with and without your middle name or initial. This causes your successors to explain or provide evidence why your name changed or is different. For all things financial, select your prefered name and use it consistently. If your preferred name does not match your governmental ID, drivers license or passport, consider formally changing it to your preferred name. The process is easier than you think and you can do it yourself. Of course, if you want we can help prepare the court pleadings for you, see our post on legally changing your name here Legally Changing Your Name in Arizona.
Cause #4: Missing or unsigned original documents.
Originals get lost during moves. Originals can also be misplaced or removed from their location by your heirs. Unsigned drafts abound, but not signing a will or trust can be catastrophic if the decedent’s desires do not happen to match Arizona probate law. In the business world this is not a problem because commerce has come to accept and enforce electronic copies of documents and provide other remedies even though the technicalities have not been met. Unfortunately, this is not the case with wills and trusts. A will or trust has issues of authentication, amendment and revocation, therefore probate courts impose additional requirements on copies of wills which increases the time period for approval and consequently, delays administration. It also can cause disputes among the beneficiaries.
Solution. Sign your documents! If you have gone through the trouble of thinking about and preparing them, sign them. You can always amend them later if they are not perfect.
Solution: First, keep all original wills and trusts in a home safe, safe deposit box or institution. Second, communicate to your heirs and successor trustee where the documents are held, but there is no need to give an heir or successor trustee the key or combination to the safe place. They just need to know where to look.
Planning for the administration of your trust is not difficult, but must be addressed during your life. Your estate plan can not be tossed in a drawer and ignored. By implementing the solutions described above you will substantially reduce the time it takes to administer your trust.