A revocable trust (sometimes known as a “living trust”) is a will substitute that avoids probate at death. Thus, a lawyer is not needed to prepare and file probate documents with a court. Do you need a lawyer for anything else? Usually the answer is “yes,” at least on an as needed basis.
After death, there are numerous administrative tasks to be taken care of – whether or not there is a probate. For example, the trustee will need to:
● File the decedent’s final income tax returns
● Pay bills as they come due
● Notify Social Security
● Cancel insurance policies
● File the Oregon estate tax return (and pay the tax) within 9 months
● Assist IRA beneficiaries in setting up “inherited IRA” accounts or selecting the most prudent distribution options
● Collect life insurance payable to the trust
● If the decedent was first spouse to die, the trustee has 9 months after death to (i) file the federal estate tax return to claim “portability” of the decedent’s $5.25M exemption, and (ii) determine whether to make disclaimers to fund the “disclaimer trust”
● Determine outstanding balances on the decedent’s loans to beneficiaries and the appropriate offset
The trustee should never make cash distributions that create risk of running out of money, even temporarily. Once funds are distributed, it is hard to get them back.
It is prudent to retain a reserve for contingencies. The amount of the reserve depends on the decedent’s circumstances. If, for example, the decedent’s only asset is a brokerage account and there are virtually no liabilities, the reserve might be modest. But if the decedent owned real property or business interests, owes taxes, or was frequently engaged in business transactions, a larger reserve is appropriate. The same is true if there are disgruntled family members who may contest the decedent’s will or trust. (The trustee will need funds for a legal defense.) Finally, there is the potential for an Oregon estate tax audit, which will usually occur more than a year after death. Without a reserve, the trustee may have to loan personal funds.
I have been involved in several cases involving trustees who acted without legal counsel and made big mistakes. In a memorable case, the trustee held the funds in the decedent’s trust for five years as a joint account to pay expenses for her and her sister (who were both going through divorces). The sister claimed she was shorted and sued. Another trustee failed to file the Oregon estate tax returns and incurred a 20% late payment penalty. I also remember a case in which the trustee failed to utilize disclaimers to reduce the survivor’s estate, which will unnecessarily result in roughly $70,000 in Oregon estate tax. Another paid himself tens of thousands of dollars for caring for his deceased parent, even though there was no contract and his siblings were kept in the dark. (He was sued.) Giving away inheritances seems easy, but there are plenty of opportunities for beneficiaries to second guess the trustee after the fact.
In conclusion, most trustees need coaching from a lawyer on an as-needed basis when administering a revocable trust after death. Especially first-time trustees for estates over $1M. Occasional legal counsel from time to time will help avoid substantial errors, and (perhaps more importantly) reduce stress to the trustee.