Often, an important part of Los Angeles trust administration is distributing real estate. Being a trustee can bring with it some unique issues when it comes to the distribution of personal property and, particularly, real estate. There are certain considerations that should be made when real estate is involved and our trust attorneys can explain some of the issues you may face.
Tip #1 – Determine what the beneficiaries actually want to do with the property
The first step in determining how to handle real estate during Los Angeles trust administration is to find out what the beneficiaries have decided they want to do with that property. Some beneficiaries decide they want to live on the property. Others may want to rent the property for income or sell the property. Once the trustee has decided what needs to be done, if there are multiple beneficiaries, the next step is to determine the portions to which each beneficiary is entitled.
Tip #2 – Determine whether the beneficiaries can afford the real estate
If there are beneficiaries who say they want to keep the real estate, then trustees must consider whether they will actually be able to afford the property. Owning real estate requires payment of property taxes, so the trustee needs to make sure the new owners will able to afford those taxes. The amount of the property taxes are based on the value of the real estate and any homes that may be located on the property.
Also, depending on whether depending on the type of property, there could be other expenses associated with maintaining the property. For instance, a vacation home may come with maintenance fees and utilities that are associated with maintaining that property. A will can provide funding for those expenses, that that is not guaranteed. So, depending on the circumstances, as a trustee you need to consider a proper solution if the beneficiary cannot afford the property. In these situations, you may want to discuss options with our trust attorneys.
Tip #3 – Consider Creating a Limited Liability Company
When the real estate consists of rental property, one tip for Los Angeles trust administration is to consider creating a Limited Liability Company. Allowing the Limited Liability Company to own the inherited rental property can have many benefits. Creating this entity can also make trust administration much easier because of the flexibility it provides to the trustee. The trustee can invest and manage the property through the business entity while protecting the value of the property. An LLC is also a wise choice when there are several beneficiaries with an interest in the property.
An LLC is a great option for real estate that produces income, such as farms or rental property. The fact that the business entity owns the property will minimize many of the issues that can arise with owning income-producing property. This way, the owner’s rights and obligations will be controlled by a formal written agreement which can include provisions for the distribution of rental income. The provisions can also spell out how and when an individual beneficiary can sell their membership interest in the LLC.
Tip #4 – Be sure to fulfill your fiduciary duties as trustee
Los Angeles trust administration requires trustees to always act in the best interests of the trust beneficiaries and within the terms of the trust agreement. Trustees are also expected to be in compliance with the Uniform Prudent Investor Act, which is a statute enacted to protect trust beneficiaries from improper investment choices.
The Uniform Prudent Investor Act also provides that trustees can be held legally responsible for any losses that result from improper investment choices, including lost investment opportunities and lost profits. This means a trustee may be held responsible for any income that beneficiaries could have received if the trustee had been more prudent with their investment strategies. If you have any questions or concerns, speak to one of our trust attorneys.
Tip #5 – Seek professional advice or assistance if you need to
Never be afraid to ask for help from a professional when you are serving as a trustee. Considering the substantial responsibility of a trustee, seeking advice from an expert is a wise decision, particularly when it comes to investments. In fact, one of the most frequently litigated issues in Los Angeles trust administration is the mismanagement of investments.
What you must remember is that, if a trust beneficiary has a disagreement with how you have administered the trust, they can (and often do) file lawsuits. For trustees, it can be expensive and time-consuming defending their actions in court. Ultimately, the legal fees incurred in defending the lawsuit will be a waste of trust assets.
Download a FREE estate planning worksheet today! If you have questions regarding estate planning, trust contests, or any other Los Angeles trust administration issues, please contact the Schomer Law Group either online or by calling us in Los Angeles at (310) 337-7696, and in Orange County at (562) 346-3209.
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