Trust Administration Process in Arizona
Many people who establish a trust for themselves and their families choose a family member or close friend to manage their money and their affairs in case they become incapacitated or after their passing. However, many family and friends find it difficult to transition from mourning the loss of a loved one to the administrative work of settling an estate. Furthermore, the trust administration process can seem incredibly daunting for someone not well-versed in law or finance.
If you’ve been named as a trustee, you may need legal assistance to help you discharge your trust administration duties. Look no further than Scottsdale’s own Brown & Hobkirk, PLLC. Our trust and probate dispute lawyers can help you navigate the trust administration process in Arizona and ensure that you fulfill your legal duties. Contact our firm today to speak with one of our knowledgeable estate planning attorneys in Scottsdale, AZ to learn more about how we can help.
What Is Trust Administration?
Trust administration refers to the process of running a trust. Under Arizona law, a trust is administered by a person called a trustee for the benefit of the beneficiaries of the trust. In many cases, a trust is used in lieu of a will as part of estate planning.
Trust administration operates much like the estate administration process for a deceased individual. However, while estate administration typically requires probate and ends once a deceased person’s assets are distributed to beneficiaries under a will or to heirs under the law, a trust can bypass probate and continue to operate long after the death of the person who established it.
Benefits of Trust Administration
Establishing and administering a trust can provide several benefits over other estate planning alternatives. These benefits may include:
- Privacy: Whereas probate and estate administration occur publicly in court proceedings, trust administration occurs in private. This can help individuals and families who wish to maintain privacy regarding their assets and financial affairs.
- Speed: The probate and estate administration process can take a long time, especially if court approval is required before certain actions can be taken – like selling a home. Conversely, trust administration allows for trust assets and wealth to be distributed to beneficiaries almost immediately following the passing of the creator of the trust.
- Cost-effectiveness: Probate and estate administration can require more involvement from attorneys, accountants, and other professionals, which means more cost. Trust administration requires comparatively less legal or professional assistance on a regular basis. In addition, using a trust rather than a will to pass on an estate can help save families from having to pay estate taxes.
Who Is a Trustee?
A trustee refers to the person who is named by the trust document to manage the affairs of the trust and who accepts the duty of administering the trust. Arizona trust law imposes fiduciary duties upon trustees to act in favor of the beneficiaries of the trust.
These duties include:
- Duties of loyalty and impartiality: A trustee is expected to behave with loyalty towards the trust, which means putting the interests of the trust and its beneficiaries over the personal interests of the trustee. A trustee cannot take actions in their capacity as trustee that would benefit themselves or a third party at the expense of the trust or the beneficiaries. Trustees are also expected to act with impartiality towards all beneficiaries of the trust and not undertake actions that favor one or more beneficiaries over other beneficiaries of the trust.
- Duty of preservation: Trustees are required to collect and protect the assets of the trust so that they are preserved and used for the beneficiaries according to the terms of the trust document. This can include not placing trust assets at risk of loss (such as in speculative investments) and not commingling the trustee’s personal assets with the assets of the trust.
- Duty of accounting: Trustees owe the beneficiaries a duty to account for all activity and transactions that occur during trust administration. Trustees may be required to provide periodic reports to beneficiaries, and to maintain the books and records of the trust for inspection by the beneficiaries.
Of course, fiduciary duties do not require perfection from a trustee, only to act reasonably and in the best interests of the trust and its beneficiaries. However, if a trustee violates their fiduciary duties, they may find themselves facing a costly probate lawsuit, including liability for any damages resulting from their breach of duty as trustee.
Important Steps in the Trust Administration Process
Establishing and beginning administering a trust requires following these steps:
- Inventorying assets. Each asset specified in the trust creation document, or held by the trust, must be identified and located. This includes collecting deeds, titles, and bank or brokerage account records.
- Valuation. Every asset transferred to the trust must have its value determined so that the trustee can perform a proper accounting and also file taxes on behalf of the trust. While the trust formation document may list values for more day-to-day assets, important or complex assets, such as real estate, jewelry, art, or ownership interests in closely held businesses may require a formal appraisal.
- Allocation. Some trusts are structured with sub-trusts that allow certain beneficiaries to benefit from certain assets in the trust (for example, a spouse being permitted to live in the marital residence put into the family trust). A trustee may need to allocate specific assets to specific sub-trusts as directed by the trust formation document.
- Retitling. Certain assets like vehicles or real estate are owned via title or deed. These documents may need to be updated if the trust administers, or transfers, the property directly to a named beneficiary.
- Obtaining a taxpayer identification number. The trust may need to file tax returns. In order to do so, the trustee will have to be recognized by the IRS as the responsible person for the trust and apply for a taxpayer identification number for the trust.
- Filing tax returns. The trustee will need to file income tax returns on behalf of the trust. Under certain circumstances, the trust may also be obligated to file estate tax returns.
- Distribution. Finally, the trustee can begin distributing trust income and principal according to the terms of the trust formation document. The trust document will either specify the distribution amount and the beneficiaries they go to or give the trustee discretion in distributing trust income and principal to the beneficiaries. Some very common trust provisions require that distributions only be made on behalf of minor beneficiaries for beneficial things like health, education, maintenance, and support.
Contact a Scottsdale Trust Administration Attorney Today
If you have questions about setting up a trust or the process of trust administration in Arizona, contact a Scottsdale trust administration attorney from Brown & Hobkirk, PLLC today. Scheduling a consultation will help you better understand your rights and obligations during the trust administration process.