A living trust is among the most common additions to a typical estate plan. One reason for this is that a living trust can be used to further a variety of estate planning goals, including probate avoidance, incapacity planning, and asset protection for spouses, children and others who might inherit from you. One concern clients often express to me during an estate planning consultation is the expense involved in administering a living trust. It turns out that the expenses of administering a Living Trust are lower than expenses of administering a plan built around a Last Will and Testament. In this blog post, I want to explain some trust administration basics, including common expenses involved in administering a trust.
A trust is a legal relationship where property is held by one party for the benefit of another party. The person who creates a trust is referred to as the “Settlor”, “Trustor” or “Grantor.” The Settlor transfers property to a Trustee, appointed by the Settlor. The Trustee holds that property for the trust’s beneficiaries, also named by the Settlor. The overall job of a Trustee is to protect and invest trust assets and to administer the trust terms found in the trust agreement. When one plans with a trust, it is intended that most assets will be administered by the person they have selected under the Trust Agreement, who is bound to follow the rules of the Trust Agreement, but who is able to administer the trust without the mandatory supervision of a court.
Trust Administration Basics
A trust is administered by the Trustee who is appointed by the Settlor. The Trustee of a trust serves two primary functions – managing trust assets and administering the trust terms. The duties and responsibilities of a Trustee, however, are numerous and varied and include things such as:
- Communicating with beneficiaries about trust business
- Keeping detailed trust records
- Dealing with an tax matters pertaining to the trust or trust assets
- Investing trust assets wisely according to any applicable standards of investment
- Distributing trust assets according to the terms of the trust
- Understanding and abiding by trust terms
- Making discretionary decisions when given the authority to do so
If the Trustee is a professional Trustee, such as a lawyer, bank, or trust company, all the trust duties may be performed by the Trustee. If the Trustee is not a professional, he/she will probably need to elicit the assistance of professionals, such as an attorney and accountant, to help with some aspects of administration. If the Trustee is a family member or friend, they may use the help of a law firm, accountant or investment advisor, as needed and in his or her discretion.
Trust Administration Expenses
The cost savings in administering a trust arise in several areas. First, assets controlled by a Will are subject to court administration through the probate process. This means that fees are paid to the court based upon the value of these “probate assets”. This does not apply to assets held under the Living Trust. Secondly, every step taken in the administration of the Will are subject to audit and compliance with the Court. To put this in context, imagine that there were ten things to be done in administering an estate and on the one hand they all had to be approved by the court, might need to be revised or redone if not satisfactory to the court, and a lawyer was involved in preparing and submitting documentation to the court. On the other hand, imagine the same ten tasks were needed without court involvement. The latter is easier, simpler, less likely to require revision or repetition, and will need less professional assistance. On top of that, it is easier for the Trustee to do these same ten things because they are done on his or her timetable rather than that of the court. On top of that, it turns our that four of the ten things don’t even need to be done in a private trust administration. You get the idea — easier, simpler, and less expensive, but not necessarily simple or free. By this I mean there can be challenges in Trust Administration, it’s just that they are less likely and when they do arise, less expensive than dealing with the same thing through the courts.
Administering a living trust does involve some ongoing expense. Exactly what those expenses are and how much the total expense is will depend on a variety of factors, ranging from the complexity of the assets to the civility of the beneficiaries (yes, if you have a beneficiary who is a pain, they increase the cost of administration for everyone).
Contact Durham Trust Administration Attorneys
If you have additional questions or concerns regarding trust administration please contact the Durham trust administration attorneys at Clarity Legal Group by calling us at 919-484-0012 or contact us online.