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| Under what circumstances do you recommend setting up an Administrative Trust? When the 1st of 2 spouses dies and the assets are not distributed immediately? When the 2nd spouse dies, while the estate is being wrapped up? Is it ever NOT permissible to set-up and Administrative Trust? Any comments or suggestions would be appreciated.
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Member
Group: Forum Members
Last Login: 5/23/2006 8:04:53 AM
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| I do not believe there is a simple answer to your questions. Regarding whether there are circumstances where an administrative trust is prohibited, I am not aware of any, but use of an administrative trust may be inefficient or an administrative trust may be being used improperly. For example, trust says on my death, distribute all remaining assets to my son. If I die with no debts or taxes due, there is probably very little reason to use an administrative trust. But sometimes people leave assets in the trust name to avoid taking title directly. That could be an abuse and the IRS may take the position that the trust terminated on death (or soon thereafter). Administrative trusts are most helpful when a period of administration is required to divide assets among various person or subtrusts and the income tax consequences are not straightforward. The determination of whether an administrative trust is needed is dependent on various factors. If you are able to treat distributions for divisions as having been made on the date of the event terminating the trust, then there is less need for an administrative trust. If you have income that will be offset by expenses before being allocated to persons or trusts, then the administrative trust can be quite helpful. An administrative trust is also helpful when dealing with funding formulas that are affected by certain events prior to the date of actual funding. Nelson Handy Holland & Knight
- Nelson J. Handy
- Partner
- Luce, Forward, Hamilton & Scripps
- nhandy@luce.com
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Power Member
Group: Forum Members
Last Login: 1/6/2010 6:00:00 PM
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Adding to Nelson's comments, keep in mind that the existing trust does not go "poof" when the terminating event happens. Rather, for legal (Probate Code Section 15407(b)) and tax (Reg. Sec. 1.641(b)-3) purposes, the existing trust continues in existence until its affairs are wound up, which usually means when its assets are distributed. Some trust instruments actually provide for a separate administrative trust, but usually, there are no provisions for one. If there are no provisions, I do not look at this procedure as "setting up an administrative trust" but instead continuing the existing trust until all assets are distributed. The planning involves deciding whether the terminating trust reports its activities until assets are actually distributed to the next sub-trust or beneficiary, or terminates before actual distribution, using receipts and accountings to show distribution. For more information on this, see Hartog's California Trust Practice.
John Jacobson
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