What Are My First Steps As A Trustee?

May 14, 2021


Duties Of A Trustee

Welcome back to our series on Trusts, our “Trusts 101” series. This is our third video in the second module. In this video we’re focusing on now that I’ve been installed as a trustee and I’ve notified everybody what I do next? What’s the next step? What are my first steps as a trustee?

So the answer to that depends a little bit on whether my beneficiary is incapacitated, if I’m taking care of an aging parent and just paying bills for them, managing the assets for their benefit, or they’ve passed away. If they’ve passed away, then I’m going to do full trust administration, collect assets, pay off debts, and then distribute the trust assets to the beneficiaries of the trust.

I’m going to do a deep dive on some of those things in the upcoming videos, but in this particular video, I just want to share some thoughts and tips from our experience about preliminary steps that you can take that are critical and important, that often get missed or forgotten by people who serve as trustees without legal counsel. The planning aspect of that and the preliminary aspect of that is critical, and hopefully, it helps you. The first step, and I’ll give you three; the first step in “what do I do now,” is to look at the actual will and trust.

Review the Will and Trust

Yes, you can read it, and it’s important that you do. You’d be shocked at how many people are trustees, and they haven’t looked at the terms of the trust themselves. It’s critical to do that because we need to know a few things. The first thing is who is involved, who are the beneficiaries? Who are the heirs? We need that in order to provide the notice that we talked about in the previous video.

We also need to know who is going to be involved in the distribution plan. Who gets assets? Do they get a specific gift of an asset, or do they participate in a percentage of the whole – what we call the residue or a residuary gift? If those people are receiving assets, we want to know who they are, and we want to know how to contact them. We’re going to need addresses. We’re going to need phone numbers. We’re going to need email addresses, all of those things.

Identify Trust Members

So start by identifying who the players are by reading the will and the trust. If it’s family, you probably pretty much know who’s involved already. But sometimes people come in as a successor or a backup trustee, and they don’t know everybody involved, or they don’t know that they actually have to include people who may have been listed previously. If there was an amendment to the trust or a change where the grantors said, “well, I was going to give this asset to this person, but I changed my mind, and now I’m going to give this asset to someone else” you still have to notify those prior beneficiaries as part of the notice process that I talked about in my earlier video.

So as part of your preliminary work as a trustee, identify who the players are, and figure out their contact information. If you don’t know, you will need to do some research and track them down. There are people who help with that like private investigators or heir search firms who are looking for those folks. So that’s the first thing, figure out who’s involved by reading the will and the trust.

Read the Distribution Plan

Secondly, look deeply at the distribution plan. I mentioned just a second ago specific gifts versus residuary gifts. Specific gifts are critical in a trust because that’s where somebody is giving a specific dollar amount to a specific individual or charity, or they’re giving a specific asset like a gift of personal property or a gift of real property to a certain person.

Specific gifts are important in trust administration because, generally speaking, the person who receives that specific gift is actually entitled to any income from it after the date of death. So trustees sometimes make the mistake of including rent or proceeds of income from assets that are to be specifically gifted into the general trust pot. When, the rents really belong to the person that gets the specific gift unless there’s some other agreement.

I really want to know who my specific gift beneficiaries are early and identify them and get in contact with them quickly and determine if there’s any reason why they can’t receive it or why I can’t give them that gift quickly.

Preserve and Protect Trust Assets

The next thing in trust administration is figuring out what I need to do to comply with my duty to protect, preserve and maintain trust property. As a trustee, I have to do those things. One of

the best ways to protect and preserve trust property is to make sure that insurance policies are in place for vehicles, houses, and things like that. So you need to figure out who the insurance agent is or where the policies are located. Have the premiums been paid in full? Are we current with premium payments? This is critical because if you become a trustee of a trust and suddenly, there’s a fire at an income property and the house burns down, and the previous trustee or even the grantor maybe let the insurance policy lapse, then we’re in a lot of trouble because now we have an asset that we didn’t preserve and protect and maintain. So think early about insurance and whether or not we have those policies in place.

List Trust Assets

Another thing that we want to do is make a list of all of the trust assets we’re aware of. That could be real estate, or it could be personal property like farm equipment or vehicles. We don’t necessarily need to list all the furnishing and the fixtures and the clothing or something in someone’s house, but generally we need to be aware of what those things are. Include bank accounts, stock accounts, investments, small business stocks, anything like that that we believe are trust assets. You start by making a list of those things, which we call an “inventory”, and we begin to get ready for the appraisal process because those assets, when somebody passes away, need to be appraised as part of our duties as a trustee.

Appraisal of Assets

Appraisal also helps the beneficiaries because under current tax law it gives them a tax basis step-up as of the date of death for the assets they get reappraised at that number. It helps them when they receive those assets at a higher tax basis. But we can’t do the appraisal unless we know what assets are out there. So we want to start making a list of those trust assets and figure out which ones are in the trust and which ones aren’t. In a future video, we’ll talk about what to do when assets are not in the trust and get into that in a lot more detail, but it’s really important to understand for an asset to be in the trust, it means that it’s titled in the name of the trustee of the trust, and it could be the prior trustee of the trust. But if it says the grantor of the trust individually, if it’s just in their name, then it’s not in the trust. If it says “Joe Smith, Trustee of the Joe Smith Trust”, then the asset is titled in the name of the trust. If it just says “Joe Smith” then the asset is not in the trust.

Real property is easy to identify as in a trust or not because you’ve got a deed on title, and the trustee can be vested as the owner on the deed. Bank accounts are easy to tell because you have an income or account statement that says that. Investment accounts are easy to tell as well because it’ll also say that. Personal property is a little bit more difficult because there’s no pink slip or deed for your couch. But as a general rule, all of those assets are typically funded to the trusts through a document called a General Assignment when people did their initial estate planning. A General Assignment sort of catches and scoops up all that personal property that doesn’t have evidence of title into the trusts. The only exception to that would be is if somebody wrote in their will or in a document called a Personal Property Memorandum that they wanted some small item of personal property, tangible property, to go to a specific individual, and it wasn’t of a significant value generally, not more than five thousand dollars for any specific item.

Personal Property Memorandums

If you’re not familiar with a Personal Property Memorandum, I encourage you to go to our website, www.lawvex.com/ppm, for Personal Property Memorandum. I’ve got a video there that explains it, and we even have a self-help tool where you can make your own Personal Property Memorandum on our website. Absolutely no cost using software that we developed. And you can list those tangible personal property items that you’d like to give away as part of your estate plan.

There are some special requirements so I encourage you to check out the video and see what those are. But assuming that a trust did not say that the grantor has a Personal Property Memorandum, and I haven’t given any of that personal property away, then all my furniture, my coffeemaker, and everything else that I own that doesn’t have a deed or a pink slip is typically already part of the trust. You will want to get in and figure out generally what’s there because I can tell you from experience, some people have a tendency to have access to people’s homes, and they show up, and they like to think that they’re entitled to help themselves to pretty much everything in the house.

Summary of Trustee First Steps

There can be some significant assets in a house. People tend to store cash, valuables, jewelry, gold, things like that at home. So preliminarily, as a tip to a trustee of a trust, after you figure out who the players are, what the assets are, then you want to move to protect and preserve personal assets quickly. Make sure you get locks changed on the house and identify what personal property is there. You can even use your cell phone and video camera and take some pictures and figure out what’s in there just so that you’re doing the best that you can to make sure that the people who are entitled to those gifts in the future are going to be able to receive them from you because you have a duty to protect that for them.

So those are some good strategies and tips for trustees that are just starting out. Make sure you’ve got insurance. Make sure that you take custody of personal property, and figure out what the trust says about specific gifts if there are any specific gifts that need to be dealt with quickly, doing those things will get you a good start in your plan as a trustee and how you will handle trust administration going forward.

So stay tuned for more deep dive videos on how to get certain kinds of assets in our next video. We’ll talk about this subject in more detail.

And in future videos, we’ll get into details like what do I do if I’ve got assets that are not in the trust? How do I get them into the trust? So hang in there with us and keep checking out these videos.

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