Estate And Trust Administration
The administration of trusts and estates is a specialized but wide-ranging practice area. It can be broken into two areas. One area is commonly known as probate, which refers to the process of handling the estate of a deceased person through the local probate court. The other area, often called trust administration, is the process of managing property that is held in a trust.
Because many people use revocable living trusts as a way to hold and distribute property after they die, there can be a lot of similarities between estate administration and trust administration. There are also important differences. Let’s look at the similarities first.
Whether a deceased person’s affairs are handled through a probate estate or through a trust, certain things have to happen. Someone (the fiduciary) has to be appointed to carry out the administration process. That person has many responsibilities and will need to assume control of the property and assets, pay the decedent’s debts and expenses, file tax returns, inventory all the property, and account to the heirs or beneficiaries for his or her handling of the property.
They have to follow the law and the written instructions in the will or trust agreement and transfer the property to the proper persons. During administration of the trust or estate, they may have to sell some of the property, and then be responsible for paying the sale proceeds to the right people. It can be a big and challenging job. In either case, the fiduciary can be compensated for their service.
Now let’s look at some key differences.
|Fiduciary’s title||Personal Representative||Trustee|
|Key document||Last Will||Trust Agreement|
|Probate court involvement||Always||Rarely|
|Public record of process||Always||Rarely|
|Court assesses a fee on assets||Yes||No|
As the chart suggests, the main reason that people will choose to use a revocable living trust is to avoid the need for probate. This can help keep matters private and reduce the cost of administration. See our estate planning practice area for more information about this topic.
Probate Estate Administration In Michigan
There are a variety of probate processes in Michigan, and choosing the right one depends on the amount and types of property in the estate, whether disputes (such as a will contest) are expected, and how much court oversight is needed.
Most processes begin within a month or so after a person dies. If they die without a will, the estate is called “intestate,” and if there is a last will, it is called a “testate” estate. In an intestate estate, Michigan law determines who has priority to become the court-appointed fiduciary (the personal representative) and who inherits the property and in what proportions. In a testate estate, the court looks to the last will for these instructions.
The first step is usually for the person who is nominated as personal representative (PR) in the last will to ask the probate court to appoint him or her as the PR by granting Letters of Authority. Until those letters are granted by the court, the nominated PR is just that, a nominee. Their real powers come from being appointed by the court.
The next step is to notify creditors of the death, so that they have an opportunity to make their claims during administration. This is very important to the PR, since failing to pay a debt could result in personal liability for the PR. The PR will also begin marshalling (getting control of) the assets and making an inventory to list the assets and their values. Appraisals may be needed. The PR has to decide what should be sold and what can be distributed “in kind.” He or she must collect the income and pay the ongoing expenses (utilities, insurance, etc.) of running the estate, and must account for each transaction. Tax returns need to be filed.
Finally, when the assets are all gathered, the debts and expenses and taxes paid, the PR will distribute the remaining property to the heirs (in an intestate estate) or to the “legatees and devisees” of the last will.
Trust Administration In Michigan
There are many types of trusts, but let’s talk about administering a “decedent’s trust” such as a revocable living trust, upon the death of the trust’s creator. When these trusts are first created, the person who sets it up (the grantor) keeps the right to cancel, or revoke, the trust. But when the grantor dies, usually there’s no one left who has the power to revoke the trust. The trust becomes “irrevocable” at that point, and a successor trustee steps in to run the trust. This is usually done by having the successor trustee sign a document called an Acceptance of Trust.
Once the successor trustee accepts the trust, he or she is legally obligated to carry out the trust according to the law and the terms of the trust until they die or resign or complete the trust administration. The trustee has to notify beneficiaries about the trust and their interest in it.
The trustee will marshal the trust assets and make an inventory to list the assets and values. Appraisals may be needed. The trustee has to make investment decisions and decide what to sell. They have to notify creditors and pay debts and expenses. They are responsible for managing and maintaining all the trust property. The trustee has to account for all of the assets, income and expenses to the beneficiaries.
If the trust is to last for a long time, then the trustee will have to develop an investment policy and manage the trust investments according to that policy. Michigan generally requires trustees to follow the Prudent Investor Rule, and if the trustee fails to do so, he or she can be held personally liable for investment losses.
If you are nominated to be a trustee or a personal representative, you should get legal advice to understand and carry out your duties. The experienced trust and estate attorneys at Driggers, Schultz & Herbst can help.