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Court of Wills, Estates & Probate

The following articles were written by former Probate Judge Merri Rudd.

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Trust Administration After Trustor's Death

9:42 AM
Merri Rudd

Editor's note: This column may not be quoted or reproduced in whole or part without express written permission of the author.

Q: : I am afraid [your column of January 27] might leave the wrong impression. You said, if you have a trust, "Assets that have been transferred into the trust pass automatically to the trust's beneficiaries…." I suspect you meant that trust assets pass without probate, but-as far as I know-they do not ever pass "automatically.". F.C., Santa Fe

Yes, by "automatically," I meant "without probate." Kudos to you for identifying Step 3 of the trust process: how trust assets get to the beneficiaries after the trustor (creator of the trust) dies.

I have already discussed Step 1, creating the trust, and Step 2, funding the trust during the trustor's lifetime by transferring assets into the name of the trustee of the trust.

Legal title to trust assets belongs to the trustee. Often a trustor serves as his or her own trustee. After a trustor dies, the successor trustee named in the trust document takes over managing the trust's assets.

The trust document identifies the trust beneficiaries and states whether any restrictions are imposed on the distribution of trust assets. For adult beneficiaries, trust assets are frequently distributed outright and free of restrictions after the trustor dies. But the beneficiaries must rely on the trustee to transfer the trust assets.

Unless there is a transfer by the trustee, the beneficiary cannot obtain legal title to the property. If the trustor owned a house, in order to transfer title to the beneficiaries, the trustee must sign, notarize, and record a new deed from the trustee of the trust to the beneficiaries. If the house is instead sold, the trustee must hire a real estate agent, list the house, negotiate a purchase agreement, pay the trust's share of costs of the sale, sign a deed transferring title to the new owners, and then distribute the proceeds of the house sale according to the terms of the trust.

If the trust included bank accounts or stock accounts, the trustee must transfer those assets to the beneficiaries by placing them in the beneficiary's account with a bank or stockbroker. If the trust assets were cash, the trustee may write checks to the beneficiaries and ask them to sign a receipt acknowledging the distribution.

The trust document sometimes imposes restrictions on the beneficiaries' shares. For example, if the beneficiaries are under a certain age or are unable to manage money well, the trustee may retain control and title of the trust assets and pay monthly income to the beneficiaries. When the trust document restricts a beneficiary's share, the trustee, at his or her discretion, is often allowed to distribute income and to spend the trust principal for the beneficiary's "health, education, maintenance, and support."

The job of a trustee is similar to that of a personal representative appointed in a probate. Both are "fiduciaries" in the eyes of the law. Both hold positions of trust and responsibility. Both must keep track of assets, expenses, income, taxes, creditors, etc. and manage the assets in a prudent manner prior to distribution.

Readers who have read prior columns are probably thinking, "It sounds like having a trust means two sets of title transfers, one when you create the trust and one after the trustor dies. Doesn't probate involve only one title transfer?" You earn a gold star for astuteness. Yes, trusts involve at least two title transfers for each asset and are not appropriate for every person. The costs of setting up, funding, and distributing a trust may well equal the cost of a court probate.

If readers know of any good resources to help trustees learn about trust administration, please let me know.

© 2005, Merri Rudd & Albuquerque Journal, All Rights Reserved 

Appeared February 10, 2005, Albuquerque Journal, Business Outlook 
Reprinted with permission

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