Trust Administration: Key Steps to Protecting Your Legacy

Estate planning is an essential process which can ensure that your wealth is distributed appropriately after you pass. Every estate planning attorney’s goal is to assist clients to protect their assets, instead of allowing the unpredictability of life to negatively impact their legacy. However, as an attorney with a wealth of experience representing trustees, I also know that well-drafted estate plans are only the beginning, and clients require consistent guidance on updates and administration of their plans — particularly, trust administration.

There are several key principles that should be considered to ensure an efficient trust administration and protect your legacy:

Failure to Utilize the Trust

Trusts are an effective estate planning tool to pass down your wealth to the next generation and protect against creditors. A trust can address complex family relationships and build in safeguards to protect young or fiscally irresponsible beneficiaries. A properly drafted trust can help you avoid leaving your legacy to a divorcing child’s ex-spouse. Utilizing a trust is one of the best ways to avoid probate court (or minimize probate court oversight), which can be costly and time consuming to the estate. Trusts also provide anonymity in certain circumstances. However, in order to adequately use a trust in your estate plan, you must fund the trust. It is an unfortunate, common fact pattern that well-drafted trusts remain unfunded, or the trust is minimally funded only at the creation of the trust, leaving the trust assets to dwindle over time.

Executing an estate plan is a task worth celebrating, but too often the guidance clients receive stops at execution. Many clients delay funding their trust because they want to avoid family drama, they do not understand complexities associated with transferring specific assets, or they are waiting for someone to call and tell them it is time. However, a trust is not effective if it is not funded. Assets that are not placed in trust are subject to your state’s probate laws.

Each state has its own laws of intestate succession (laws which apply when an individual passes without a will) and testate succession (laws which apply when an individual passes with a will).

These laws may result in unintended outcomes, such as family members you wouldn’t choose as heirs receiving part of your estate, or creditors claiming family heirlooms you intended to pass to the next generation. At the very least, the probate process will cause unnecessary delays in the administration of your estate. Instead, start estate planning early and update your estate plan as circumstances change.

Not Planning for Incapacity

Estate plan documents can direct what happens with your assets after your pass away, but they can also address your incapacity. A properly executed financial power of attorney and healthcare power of attorney can appoint a trusted individual to make decisions when you are incapable of doing so for yourself. These estate planning tools when properly executed survive incompetency or a diagnosis of dementia, but not death.

However, when you have a trust as part of your estate plan, it is important to ensure that these documents and your trust align. Your financial power of attorney and healthcare power of attorney commonly authorize your agents to spend money for your health and welfare; however, if all of your assets have been placed in a trust with no correlating provision authorizing your trustee to expend trust resources for that purpose, this could create a scenario where your plan breaks down. The trustee may have to breach their fiduciary duties or seek court permission to carry out your plans.

It is important to periodically review these documents to ensure they reflect your current wishes and your entire estate plan works in unison. A well-drafted estate plan should enable each document to work together to accomplish your goals, and any life changes should be addressed in the documents as they arise.

Ignoring Digital Assets and Other Technologies

In this digital age, many individuals have exclusively digital assets and accounts. It is important your estate plan contemplates these digital assets and makes provisions for them. Without provisions for digital assets and accounts, it can be difficult for your heirs and fiduciaries to access cryptocurrency holdings, social media profiles, and email accounts. By incorporating provisions for your digital assets into your trust, you can ensure your trustee will have access to your assets and accounts after your incapacity and death.

Rights to access data collected through a variety of apps and websites has become a hot topic in recent years. Just as you would like your assets to be marshalled by your executor and trustee, the ability to download, store, sell and destroy your digital footprint is likely to become an important legal issue in the future.

While your estate plan can incorporate the rights of your beneficiaries and authority of your trustee, the complex laws surrounding data privacy and rights to digital assets often require attorney assistance.

Conclusion

Protecting one’s legacy requires more than just drafting a will or creating a trust — it involves careful and ongoing attention to detail in the years that follow the creation of an estate plan. Ensuring that a trust is properly funded, that incapacity planning aligns with the trust, and that digital assets are properly accounted for are all essential steps in creating a comprehensive estate plan. Failing to address these key areas can result in unnecessary complications, delays, and unintended consequences for loved ones. By taking a proactive approach to estate planning and regularly reviewing and updating documents with a trust and estates attorney, individuals can help ensure that their assets are protected and their wishes are carried out smoothly. Working with an experienced trust and estates attorney provides invaluable guidance to navigate these complexities and secure your financial future.

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