What is an Administrative Trust?

by | Mar 21, 2023 | Estate Planning | 0 comments

An administrative trust is a temporary legal arrangement established upon a person’s passing. Before assets are given to beneficiaries and heirs, the trust enables someone to manage estate assets and cover final costs. Continue reading to learn more about when an administrative trust could be appropriate and to find answers to other frequently asked questions regarding trust management.

How Does an Administrative Trust Operate?

When a person passes away and their estate has to be handled, an administrative trust is created. A time of administration is when the assets are marshaled (collected), and obligations and taxes are paid as necessary if they are not already in trusts with clear instructions for how they will be transferred to beneficiaries.

The executor of the estate or the administrator of the trust must do a variety of tasks during this period. They start by getting the estate a taxpayer identification number. They inventory the estate’s resources and costs, pay invoices and debts, and perform other duties. They submit a tax return and cover any applicable income and estate taxes. The trust administrator (or trustee) subsequently distributes the remaining assets among beneficiaries following the decedent’s estate plan and probate law terms.

An Administrative Trust and Estate Plans: How Do They Interact?

The administrative trust is not intended to replace estate plans or serve as a formal trust to safeguard your or your heirs’ interests. It only serves as a good stopping place for assets during the estate administration procedure.

Consider a widower with three grown children as an example. When he passes away, he intends to distribute all his possessions evenly to these kids. To do this, he established three trusts and drafted a will specifying how his assets should be distributed equitably and utilized to support these trusts after his passing.

His assets won’t be in those trusts when he passes away. Once a person passes away, finding and gathering their assets takes time. Yet the estate must be established before they may be shared among the heirs. It is recognized that a temporary administrative trust is found throughout the estate administration process.

The executor or trustee collects the assets and pays off obligations. The assets are divided and utilized to fund the trusts for each of the three children once all relevant accounting and tax procedures have been completed. After it, the administrative trust no longer exists.

How is an Administrative Trust Managed?

In your will, you can name the executor of your estate. Usually, this person serves as the administrative trust’s trustee or a de facto administrator. They are automatically regarded as administrative trust fiduciaries, meaning they are legally obligated to make choices that safeguard the interests of their heirs and beneficiaries.

What Happens if No Executor Is Named?

The court will appoint an executor of your estate if you don’t. A family member or close friend interested in the role typically petitions the court to be designated the administrator. However, the court could invite a family member to fill this position if no one steps forward to volunteer. The person is always free to decline this request. The court may ask a third party to manage the estate if no one can be identified to do so.

Ultimately, it would help if you took the time to draft a will that names an executor to safeguard your desires and ensure your heirs’ interests are looked after by someone you can trust. This enables you to express your willingness to distribute your assets in writing, which may have a favorable effect on how your estate is administered in the future.

What Is Trust Litigation?

Your beneficiaries have some rights, regardless of whether you have established a trust to assist your heirs or if an administrative trust is created automatically to manage your assets as soon as you pass away. If they believe a trustee is mismanaging funds or violating their beneficiary rights, they can pursue legal action against the trustee to defend their rights.

When Might a Trust and Estate Planning Attorney Help?

An expert estate planning lawyer can assist with future planning and asset protection to secure the welfare of your beneficiaries and heirs. Setting up trust before your death is one approach to do this. These trusts are distinct from temporary administrative trusts, which take effect after your death and are used to administer assets by the estate executor.

You may avoid going through many of the abovementioned procedures by setting up and financing trusts while living. This is so because the trust, not you, owns the assets you place in a trust. Although the IRS decides whether trusts are taxable, most trusts offer some defense against taxes, creditors, and other risks to your assets.

By working with a trust attorney, you can better grasp all of your options and what you can and cannot do with trusts. Get in touch with Barilari & Williams, LLP, right now to learn how we can assist you in safeguarding your assets for the future.