New York City Trust Administration Lawyer
The process of administering a trust is similar to estate administration. Estate administration, sometimes referred to as probate administration, occurs after you pass away and is the process of winding up your estate according to the terms of your will. It involves gathering the assets of the estate, paying the decedent's debts, and distributing the remaining assets. Estate administration is managed by the executor you named in your will, is a part of probate and is overseen by the New York Surrogate's Court. Trust administration is the process of managing the assets of your trust according to the terms of your trust agreement. Trust administration is managed by the trustee. However, because a trust is not subject to probate, trust administration typically occurs without court oversight. In addition, because a trust is not subject to probate, trust assets are distributed a lot more quickly than assets in your probate estate. If you have a trust and would like to learn more about the process of trust administration, contact an experienced New York City Trust Administration Lawyer who can explain to your how trusts work and also answer other challenging questions regarding estate planning.
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The trustee is responsible for carrying out the terms of the trust. The trustee can be one or more individuals, or can be a company. If you name more than one trustee, they are referred to as co-trustees. Because of the significant amount of responsibility the trustee will have and because your financial health and the financial health of your beneficiaries are at stake, it is important to carefully select the person or company who will fill this role.
You should also considering naming a successor trustee. This would be the person who will step into the role of the trustee if the primary trustee is unable or unwilling to serve or continue to serve as the trustee. The responsibilities of the successor trustee are the same as the original or primary trustee. However, unlike a co-trustee a successor may only perform trustee duties once the primary trustee is no longer acting as trustee. If you do not name a successor trustee, should the primary trustee step down the court will appoint a successor.
With a living trust you can appoint yourself as the trustee and name someone who you trust as your successor trustee. Appointing yourself as the trustee allows you to maintain control over assets and trust administration during your lifetime if you so chose. Upon your death, the named successor trustee with take over trust administration responsibilities.
While a trustee are entitled to receive compensation, if the trustee is a family member he or she may not a accept fee. However, if the trustee is a bank, attorney, or corporation, the trustee's fee is typically a percentage of the funds under management.What are the steps in trust administration?
While trust administration duties will vary depending on the type of trust, the needs of the beneficiaries, and the type of assets held by the trust, there are steps that are common to the administration of most steps.
Inventory trust assets. The trustee must identify and locate each asset in the trust. This process will involve a review of all assets in your estate to ascertain whether or not they were transferred to your trust during your lifetime. It is important to confirm that all trust assets have been properly titled to the trust and are not still titled in your name. Any asset that was not transferred to your trust during your lifetime may be part of your probate estate and subject to probate administration.
Appraise assets. A critical step in the trust administration process is an accurate valuation of the trust assets as this will determine how much is available to distribute to beneficiaries, but will also have tax implications. If the trust is assets are significant or if it contains assets that are difficult to value, then it may be a good idea to hire an expert to determine the value of the trust assets.
Pay trust bills. Before distributing the trust's assets, the trust must take care of all outstanding trust debts and obligations including filing and paying taxes, paying professional fees such as attorney and financial advisor bills, and address any claims against the trust.
Distributing assets to the beneficiaries. The final step in trust administration is to distribute assets to the trust beneficiaries according to the terms of the trust. While for some trust the terms may direct that once you pass away the trust assets are to be distributed to the beneficiaries immediately and on one lump sum, that is not the case for all trusts. Some trusts, particularly minor trust or spendthrift trusts, distribution of assets may occur well into the future, or may occur in various stages of an extended period. In such instances, the trustee will have ongoing duties that require not simply distributing assets according to the schedule set forth in the trust document, but managing and investing trust assets.What are the fiduciary duties of a trustee?
Because a trustee is a fiduciary with respect to the trust, the trustee has certain duties with respect to the trust.
- Duty of Care: The trustee must carefully manage and invest trust assets. The trustee must make all transactions with reasonable care, skill, and prudence caution. The trustee must monitor all investments to make sure they are being productive and avoiding loss. A trustee must be actively involved in the managed of the trust and not merely a passive bystander.
- Duty of Loyalty: The trustee must be loyal to the trust beneficiaries and must not put his own interests above the interests of the beneficiaries. Not only must the trustee refrain from undertaking any transactions that would be adverse to the interest of the beneficiaries, the trust must also avoid any “self dealing transactions.”
- Duty to Segregate: A trustee must keep all of the trust assets separate from his own assets. This means, for example, the trustee must have a separate bank account for his own money and a separate bank account for the trust's assets. In fact, one of the first things a trustee should do is get a tax ID number for the trust and open accounts in the name of the trust. Trustee will be liable for commingling of trust assets with his property even if they were without fault.
- Duty to Invest: The trustee has a duty to make the trust property productive and prudently invest the trust property for the income of the beneficiaries. This is particularly applicable when the trust will remain in place for an extended period of time. If the trustee does not have the expertise to make wise investment choices, then the trust must hire an investment advisor.
- Duty to Account: The trustee must keep accurate, detailed records of all transactions involving trust property, including records, of investments, improvements, losses, expenses and distributions.
A trustee's role is that of a fiduciary with respect to the beneficiaries of the trust. As such the trustee is held to a very high standard. If a trustee violates his or her duty as a fiduciary, that trustee may be suspended or removed by the court. N.Y. EPTL § 7-2.6. For example, if the trustee fails to abide by the specific terms of the trust, the beneficiaries can petition the court to remove the trustee. Also, trustees and other fiduciaries are required to make financial decisions that are in the best interest of the trust and the trust's beneficiaries. If a trustee makes a decision that is in his or her self-interest and not in the best interest of the trust, the court may intervene and remove the trustee. If as a result of such self-dealing the trustee damages the trust's financial position or enriches him or herself, the court my order that the trustee make the trust account whole for any losses suffered, or personal enrichment.
Beneficiaries can petition the court for removal upon the showing of good cause for the removal. A court will hear such a petition and has wide discretion to remove a trustee if it finds good cause to do so. If a trustee is removed or resigns, if there is a successor trustee or co-trustee, that trustee will move forward with managing the trust. If not, then the court will have to appoint a new trustee.
If the court finds that a trustee has violated a fiduciary duty, the court is not required to remove the trustee. Depending on the type of violation and its severity, there are other remedies short of removal that a judge may require. For example, if the trustee fails to follow the terms of the trust agreement, the court my order the trustee to do so. The court may also suspend the trustee. Of course, the court may find that the trustee's actions are so egregious that removal is the appropriate remedy.Does a trustee get paid?
Trustees are entitled to reasonable fees for their services. However, trustees who are family members generally do not accept fees; but in some cases they do, particularly if the trust assets are significant.
If the trustee is an institution such as a bank the fee would be a percentage of the trust assets. Other trustees such as a trustee who is an attorney, accountant, or financial advisor may charge an hourly rate for trust management.
If you have concerns about how to set up a trust, how to administer a trust, or how a trust that you already have is being administered, contact Stephen Bilkis & Associates, PLLC. If a trust is not set up properly is not managed properly, your finances or the finances of your beneficiaries will likely be negatively impacted. We have years of experience representing trust administrators, beneficiaries and other interested parties in New York courts. We will advise you on the best course of action for your specific trust administration concern. Contact us at 1.800.NY.NY.LAW (1.800.696.9529) to schedule a free, no obligation consultation regarding your estate plan. We serve individuals throughout the following locations: