What is Trust Administration and Do You Need an Attorney?

Trust administration is the process of managing and distributing the assets held in a trust after the trustmaker (grantor) passes away or becomes incapacitated. It involves carrying out the specific instructions written in the trust document rather than a will.

The process begins when the successor trustee steps in to take control of the trust’s assets. They must gather all assets, pay any remaining debts or taxes, and then distribute the remaining property to the beneficiaries according to the trust’s terms without court intervention.

Yes, a standard checklist includes: obtaining death certificates, reviewing the trust document, notifying beneficiaries and creditors as required by Arizona law, inventorying assets, applying for a Tax ID number, paying creditors, filing tax returns, and finally, distributing assets.

A trustee has a legal duty to act strictly in the best interest of the beneficiaries. This includes the duty of loyalty, the duty to be impartial (not favoring one beneficiary over another), the duty to invest prudently, and the duty to keep accurate records and avoid conflicts of interest.

Trust administration is a private, out-of-court process that is generally faster and less expensive than probate. Probate is a public, court-supervised process used to validate a will and distribute assets that were not funded into a trust.

The primary steps are: 1) Secure the trust assets and get appraisals; 2) Notify heirs, beneficiaries, and creditors as required by law; 3) Pay valid debts and taxes; 4) Keep detailed accounting records; and 5) Distribute the assets to beneficiaries as directed.

Being a trustee requires organization, financial prudence, and strict adherence to the law. While you do not need a legal degree, you should review the trust document carefully, keep assets separate from your own, and consult with professionals like attorneys and CPAs to guide you through complex decisions. At Copper State Planning, we offer a ‘Trustee Orientation’ meeting to guide you through your first steps and ensure you don’t accidentally break the law.

Arizona law requires trustees to keep beneficiaries reasonably informed about the trust and its administration. This includes sending a formal notice of the trust’s existence within 60 days of the grantor’s death (A.R.S. § 14-10813) and providing an annual accounting of trust assets.

Trustees are responsible for filing the decedent’s final income tax return and a separate income tax return for the trust (Form 1041) if it generates income over a certain amount. In larger estates, the trustee may also need to file a federal estate tax return if the value exceeds the exemption limit (currently over 15 million).

Common pitfalls include commingling personal funds with trust funds, failing to provide required notices to beneficiaries, making distributions too early (before debts are paid), and investing trust assets in high-risk ventures.

While not legally required, hiring an attorney is highly recommended to protect yourself from liability. An attorney ensures you comply with Arizona specific laws, properly interpret the trust’s language, and provides “legal cover” against potential lawsuits from unhappy beneficiaries.

If assets were not titled in the name of the trust before death, the trustee may need to use a “pour-over will” to transfer them. If the value of these outside assets is significant, a probate proceeding might still be necessary to move them into the trust.

Yes, a trustee can be personally sued for “breach of fiduciary duty” if they mismanage assets, fail to pay taxes, or steal from the trust. Using professional legal counsel helps mitigate this risk by ensuring all actions are documented and lawful.

The timeline varies based on the complexity of the estate and the types of assets involved. Simple administrations can take a few months, while complex estates with tax issues or real estate sales can take a year or more to fully settle.

Generally, yes. Most trust documents and state laws allow trustees to receive “reasonable compensation” for the time and effort spent administering the trust. This fee is paid from the trust assets before final distribution to beneficiaries.