TRUST ADMINISTRATION DURING COVID-19: Things for Trustees and Beneficiaries to Consider
While it is important during this Coronavirus pandemic to make sure that each of us has our own estate plans in place, our office continues to receive many inquiries about Trust administration during COVID-19. Trust administration is necessary when a loved one is incapacitated, a spouse passes away or a Trust is terminated following the death of a single person or a surviving spouse. People call our office with many questions and issues– these are some of the most common inquires we have received during the past two weeks:
- A trustee calls because their siblings are threatening to sue them, and their mother passed away only one month ago.
- A trustee calls because they cannot access a bank account in dad’s name only. The bank has frozen the account and they cannot pay the mortgage and other expenses.
- A trustee calls worried because the funds of the Trust they are administering have taken a deep dive due to the COVID-19 crisis.
- A beneficiary calls because the trustee will not communicate with them and refuses to show them a copy of the Trust.
- A beneficiary calls because it has been three years since mom passed away and they have not received an update from the Trustee in six months.
- A child calls because their dad is incapacitated in the hospital and they don’t know what steps to take to gain control of his assets.
- A child calls because dad has dementia and they are worried about his ability to manage his finances, but dad is adamant that nothing is wrong.
Trust Administration During COVID-19
Although life has shut down in many ways due to COVID-19, the trust administration process goes on and now more than ever, beneficiaries will need their inheritance to help keep them afloat given these uncertain times. Beneficiaries will be closely scrutinizing the actions of a trustee and will be impatient to receive their funds.
Below are the top six things you should know about Trust administration in California whether you are a trustee or a beneficiary of a Trust:
1. You are not going to get your money right away.
This is a problem many of our trustee clients face after the death of the creator of the Trust. Be it one day, one week or one month later, the beneficiary asks, “Where is my money?”. Although Trust administration is a private process that is shorter and less expensive than Probate (the court process when someone dies without an estate plan in place), there are still a complex set of rules that govern the trustee. In most cases, the trustee is required under Probate Code Section Probate Code §16061.7 to provide Notice to the beneficiaries. This notice informs the beneficiaries of the Trust’s irrevocability, identifies the trustee and the address of the Trust Administration. The beneficiaries have 120 days from the date of the notice to contest the Trust. Because of this 120-day contest period, beneficiaries should expect to receive their Trust distributions 6 months-1 year after the passing of a loved one. If distributions have not been made by the one-year mark, the beneficiaries have a strong argument that the trustee has breached the Trust and may petition the Court to have the trustee removed.
2. The trustee is required to communicate with you and provide you with information.
We tell our trustee clients they are the managers of the Trust and should consider themselves employees of the beneficiaries. As an employee, you should communicate often and informally with the beneficiaries just as you would with your boss. In many situations, a family meeting with an attorney can help to inform the beneficiaries about the Trust administration process and the timeline so all parties are on the same page. Communication is the easiest way to build trust with the beneficiaries and avoid hurt feels and anger during and at the end of the administration.
3. The trustee should have an Investment Plan in place.
To comply with their fiduciary duty, a trustee must develop an Investment/Management Plan pursuant to Probate Code §16047. Failure to create an Investment/Management Plan could subject the Trustee to liability should the Trust assets decrease in value under his or her management. Each trustee should familiarize themself with the Uniform Prudent Investor Act [PC § 16045-16054]. In many cases, a trustee should work with a financial planner to implement the Investment/Management Plan. Having an Investment/Management Plan in place is the best protection from personal liability. Those of our trustees with existing plans in place are now readjusting them given the change in the economic conditions. We suggest that the Investment/Management Plan is updated on a yearly basis or when there are changes o the assets or the needs of the beneficiaries.
4. The trustee is required to provide an accounting to the beneficiaries.
It is critical and a trustee’s fiduciary duty to keep an accurate Trust accounting from date of death or date of installation as trustee to date of distribution. The accounting provides the value of the estate upon the death of the creator of the Trust, and the reimbursements to the trustee for various expenses (including legal and tax professional fees). In most cases, a trustee is required by law to provide an accounting to the beneficiaries no less than annually or upon the reasonable request of a beneficiary. The accounting helps to protect the trustee from personal liability.
5. The trustee is entitled to Compensation.
Being a trustee is a big job. Many trustees tell us at the beginning of the administration that they do not plan on taking a fee, but 6-12 months later, they usually elect to take the fee. Generally speaking, trustees are entitled to compensation for their services, not to exceed 1% of the trust estate at the date of death. You may get paid a reasonable hourly rate as an alternative. However, in such case you must keep meticulous records of your time spent. We advise our trustees to create an excel spreadsheet to track the time spent administering the Trust. Some examples of entries include: arranging for the funeral, working with a realtor to sell real property, communicating with beneficiaries, meeting with attorneys, tax professionals and other agents, and meeting with representatives from banks and other financial institutions.
Whether you are a trustee or a beneficiary, our firm offers free 15-minute phone calls with one of our experienced and caring attorneys when you have a loved one who is incapacitated or has passed away. This includes inquiries about trust administration during COVID-19, probate and Medi-Cal. Call 866-988-3956 or contact us here to receive your free 15-minute phone call.