Talk to a Arizona trust administration attorney today to understand what needs to be done.
The process of managing a trust is called trust administration. Here are ten things everyone should know about the process.
Only 33% of US adults have an estate planning document. Of these adults, only around 19% use trusts. To avoid probate under Arizona law it is easier to have a trust, but not necessary.
A trust is a financial instrument by which a grantor (the owner of the trust) grants a trustee the legal right to manage trust administration on behalf of one or more beneficiaries. The Trustee's duties will be considered fiduciary duties.
Have you recently been assigned as trustee of an Arizona trust? If so, you may wonder what to expect. We created this guide to help you out, so keep reading for ten of the most important things you need to know about your new role. You may want to consider hiring an experienced trust administration attorney to help with the trust administration process and the estate administration process.
1. Arizona Laws Dictate Trust Administrator Duties
Arizona's trust administration law details the duties of a trust administrator (fiduciary duty). These trust administration duties include but are not limited to the following:
- Managing trust investments
- Identifying trust properties
- Protecting the value of trust properties
- Managing trust businesses
- Enforcing trust claims
- Preparing financial reports regarding the trust
- Distributing the trust funds
- Paying trust debts under Arizona state law
- Pay taxes under federal estate taxes
- Dear with personal property assigned to the trust
In exchange for these duties, trust administrators may or may not receive reasonable compensation depending of the trust document. In Arizona, it is also legal to request reimbursement for out-of-pocket expenses trustees acquire.
2. Trust Administrators Can Legally Delegate Duties
Sometimes, situations arise where a trustee can't carry out all of his or her duties. Maybe you are going on an out-of-state business trip. Or maybe you have to move to a new state or country for work.
When this happens, you can still fulfill your duties through delegation. In Arizona, it is legal to delegate certain matters to qualified professionals. Otherwise, you could ask to be reassigned as trust.
Having an foreigner trustee that resides out of the country may be a problem. It can create unnecessary tax liability. If that is your case talk to an experienced trust attorney in Chandler, AZ to find the right solution to your case.
3. Trust Administrators Must Answer to the Trust Protector
Changes made to the Arizona Trust Code (ATC) in 2009 gave a legal basis for trust protectors. A trust protector can't be the same as a trust administrator. These individuals have the power to act on behalf of beneficiaries and protect trust property.
Importantly, trust protectors can remove and appoint trust administrators. They may also change the principal place of trust administration or the state where the trustee administers the trust. Talk to your legal counsel if that is your case.
4. Trustees and Beneficiaries Must Undergo Mediation
The new ACT changes also impact what happens when a dispute over the trust arises. Previously, trustees and beneficiaries could handle these disputes privately. That has since changed.
Now, trustees and beneficiaries must resolve disputes with Alternative Dispute Resolution (ADR). ADR involves mediation or arbitration to help determine the interpretation of the trust. A Trustee has a fiduciary duty to the trust. They can be sued if they don't act correctly and may have personal liability as a fiduciary if they don't administer a trust properly and follow all legal requirements.
5. The ATC Outlines a Specific Trust Administration Process
Are you wondering what happens when it comes time to administer the trust you oversee? Luckily, the Arizona Trust Code outlines the following six-step process for trust administrators to follow:
- Review the trust with a legal professional
- Inventory trust assets
- Manage trust assets
- Notifying beneficiaries of their rights in the trust
- File federal tax returns and pay taxes owed
- Distribute assets to beneficiaries in the manner outlined in the trust
The right type of legal professional you need to start the process is a trust administration lawyer also know as a estate plan attorney. Many attorneys who specialize in estate law also offer trust administration services. It will be at the discretion of the Arizona attorney to help administering a Trust that was not created by him or the law firm he works for.
6. Administrators Must File Taxes for Trusts Valued at Over $1 Million
One of a trustee's responsibilities is to file a federal estate tax return. However, this is only true for trusts valued at over $1 million. Trustees must also file income tax returns for the estate.
Of course, there are ways to reduce or even eliminate estate taxes. One example is the exemption trust. But if you oversee an exemption trust, you will have additional duties that a trust attorney can help you understand.
Distributing assets of the trust should only be done after all taxes are paid. An experienced estate planning lawyer should be able to guide you.
7. Trust Administrators Can Exercise Certain Legal Powers
A trustee's primary duty is to preserve the trust they administrate. They should have the best interests of the trust in mind. As such, they may practice certain powers to further this goal. These powers may include:
- Making investments
- Buying and selling assets (real property)
- Purchasing insurance policies
- Making repairs to properties listed in the trust
Of course, these are not the only powers trust administrators have in Arizona. For example, one of your most important powers is the ability to distribute funds to beneficiaries of the trust you oversee. You should always keep detailed records and look for accurate appraisal when dealing with trust property and assets.
8. Failing to Uphold Your Duties Can Result in Termination
Trust protectors are not the only individuals who can terminate trust administrators. An Arizona court can also terminate your position. There are a variety of reasons a court can legally do so. A probate court can make decisions in relation to a trust.
One of these reasons is if the trust administrator fails to perform his or her duties. In fact, a court can remove you as a trustee in any case where it is in the best interest of the estate.
9. Other Consequences of Failing to Uphold Your Duties
Termination is not the only consequence to worry about. Arizona courts can take additional measures to punish trustees who don't fulfill their fiduciary duties.
For example, your compensation could be reduced or outright denied. In extreme cases, a court could even order you to make payments and provide other forms of relief to remedy a breach of trust.
10. A Trust Administration Lawyer Can Help You Understand Your Responsibilities
Hiring a lawyer is the first step in the ATC's process trust administration process for a reason. These professionals can help you understand your duties and powers. That way, you can avoid breach of trust consequences.
But don't feel like you can't talk to a legal professional throughout the entire process. A trust administration attorney can help you understand your rights and responsibilities every step of the way.
Need a Trust Administration Attorney in Arizona?
These are not the only laws surrounding trust administration in Arizona. A legal professional can help you understand which laws apply to you and how to avoid the potential consequences of a breach of trust. It makes sense to also work with an attorney that can do probate in case you have to go through the probate process to put assets into the trust.
Do you need help understanding your rights as a trust administrator in Arizona? Citadel Law Firm specializes in all things estates, wills and trusts. Schedule a free consultation with Citadel for the advice you've been searching for. You can call (480) 565-8020 or click here to schedule your free initial consultation.