Records and Reports At the outset, it is critical to understand the importance of keeping all records and documenting all activities during the course of the administration. Keep track of all income received, expenses paid, transfers, distributions, etc., involving the assets of the estate. Under Utah law, trust beneficiaries are entitled to request information relating to the trust assets (after the trust becomes irrevocable upon the trust maker's death or incapacity). Although the law does not require any particular format, it is best to organize it into an easy-to-understand spreadsheet that identifies each asset and shows what has come in and gone out since date of death. Unless the beneficiaries waive their rights to receive a report, it is good practice to share it with the beneficiaries before proceeding with any distributions to make sure there are no potential concerns from the beneficiaries' perspective that need to be resolved first. This report is also ideally accompanied by a proposal for distribution that outlines who is getting what and asks each of the beneficiaries to give their approval of the proposed distribution and sign a release of liability before proceeding. Beneficiaries cannot be required to sign a release of liability, but trustees can choose to postpone making a distribution for a reasonable time until they are confident that there are no unresolved issues. One helpful tip related to keeping records is to obtain a new tax identification number with the IRS and open a new checking account in the name of the trust into which liquidated trust funds can be deposited then used to pay all expenses. That way, the bank statements help to keep track of everything coming in and going out. Consult with a tax adviser or attorney about obtaining a new tax identification number. Follow the Terms of the Trust Carefully review the trust to make sure you understand the duties and powers of the trustee described in the document, who the beneficiaries are, who gets what (and how/when they get it), and whether the trust requires the creation of any sub trusts. Carefully follow the terms of the trust to keep yourself safe from personal liability. If there is any reason to depart from the terms of the trust, ensure that it does not cause any problems with a beneficiary and that it does not trigger undesirable tax or legal consequences. Any time that you depart from the terms of the trust, it is important to get consent from the beneficiaries in writing. Communication Keep the beneficiaries of the trust informed about actions taken that may impact their interests. If there is any concern that an action may cause problems, then it is best to communicate with the beneficiaries and receive their consent before taking that action. Make sure they know how to contact you if they have questions or requests. Let the beneficiaries know they can request copies of portions of the trust that relate to their interests. If you plan to receive compensation for your time as trustee, notify the beneficiaries of the amount and rate of trustee compensation. In general, it is a good idea to communicate in writing where it is reasonable, so that there is a record of everything. Safeguarding Property Take whatever steps are necessary to ensure that all property of the trust is protected from theft or damage. Stories of a family member taking things that mom/dad promised them before anyone else has a chance to claim anything are common. Review the estate planning documents to see if there is a signed memorandum addressing whether certain items of personal property are to go to a specific person and be sure that such items are kept safe until they can be delivered to that person or he/she can pick them up. Identify the Property Make an inventory listing all assets of the trust, including date of death value, how each asset is titled, and whether there were any joint owners or beneficiary designations. It is generally wise to get an appraisal for all real property. Consider having the mail forwarded to your address if you cannot go pick it up in person, which is helpful to identify accounts and bills. If there are assets that are not owned by the trust and which do not have a joint owner or beneficiary designation, take note of the value and add up the value of all assets that fall into this category (other than personal property items with no title or account associated with their ownership). If the total value of assets in this category amounts to less than $100,000 and does not include real property, then you may be able to get control of them without having to initiate a probate proceeding. This is commonly known as the *small estate procedure.* If the value adds up to more than $100,000 or real property is involved, then a probate proceeding may be required to get control of the asset. Note that assets in this category are controlled by the last will and testament, so it is important to review the will to verify whether it gives everything to the living trust or names different beneficiaries than the trust. If the asset is jointly owned or names a beneficiary, then the joint owner or beneficiary takes control of the asset without the need for probate or trustee involvement. Distributing the Assets As stated above, it is wise to resolve any disputes and send a report to the beneficiaries about the assets prior to making distributions. In addition, it is important to carefully review bank statements and financial records to make sure there are no outstanding debts to be paid or overpayments to be refunded before making distributions. It is also a good idea to communicate with the beneficiaries and verify whether they have any preferences regarding the method of distribution of the assets (in kind or in cash). If there are any assets that may be tax sensitive, such as an IRA or 401K, consult with a financial adviser or estate planning attorney before making any decisions as to the distribution of those assets.
Assuming the trust directs personal property to be distributed under the terms of the trust, in many cases it is easiest to simply communicate with all of the family members and allow everyone to see the property and have an equal opportunity to make requests, then attempt to divide everything up in a way that does not cause disputes. If disputes are likely, the best route is often to simply hire an estate sale specialist and sell the property, then add the proceeds to the trust account to be distributed in cash. Again, the key is to communicate openly with the beneficiaries.
Lastly, it is good practice to hold back a certain amount to make sure there is enough to pay whatever final taxes may be owed and pay the tax adviser for preparing the returns. Typically, a safe amount to hold back is 20% of the total assets, but this will vary from one case to another. The amount held back is heavily dependent on the confidence level of the trustee regarding what remaining debts there are and how much may be owed in taxes. It is always a good idea to talk with a tax adviser about preparing the final individual and fiduciary tax returns. After the final returns are filed and all remaining debts are paid, the remaining amount can be distributed to the beneficiaries. There is no action needed to officially terminate the trust, other than distributing all of the assets and ensuring all tax returns are filed and accounts are closed.