An Overview of Michigan Trust Administration
When a loved one passes away, the transition of their legacy often hinges on a process known as trust administration. Unlike the public and often lengthy process of probate, trust administration is designed to be a private and efficient way to manage and distribute assets. However, being named a trustee is a significant responsibility that carries strict legal duties under Michigan law. In this article, the Michigan Probate Attorneys of Thompson Legal will provide an overview of the trust administration process, so that you can move forward with confidence during this difficult time.
Please note that this post is not exhaustive, and every situation is unique. In the event that you have legal questions about working with a potential probate administration matter, it’s advisable to speak with a licensed attorney. Contact Thompson Legal to speak with a Michigan attorney today.
Why Trust Administration is Unique
In Michigan, trust administration is primarily governed by the Estates and Protected Individuals Code (EPIC). One of the most common questions clients ask is why they need "administration" if they already have a trust designed to "avoid probate."
While a trust does avoid the court-supervised probate process, it does not avoid the work itself. The primary difference is supervision. In probate, a judge oversees the Personal Representative’s actions. In trust administration, the trustee handles the estate privately. This privacy comes with a cost. It is faster and more discreet, but it places a higher burden of "fiduciary duty" on the trustee to act in good faith without a judge looking over their shoulder.
A trustee in Michigan is held to a legal standard known as a fiduciary duty, which requires them to manage the trust’s affairs with the utmost loyalty and care. Under Michigan law, these responsibilities include the duty to remain impartial among beneficiaries, protect trust property, and strictly follow the specific instructions laid out in the trust document. Because a trustee can be held personally liable for mistakes, understanding the full scope of these legal obligations is essential for anyone stepping into this role. To ensure you are meeting your requirements, you can review our comprehensive guide on the duties of a trustee in Michigan.
Steps in Trust Administration
Under the Estates and Protected Individuals Code, a trustee must follow a general sequence of events to ensure the settlor’s wishes are followed, that the trust beneficiaries are honored, and that the Trustee can be protected from personal liability.
1. Acceptance of Appointment and Notification
The process begins when the successor trustee formally signs an Acceptance of Trust. Per MCL 700.7814, the trustee must notify all "qualified trust beneficiaries" of the trust’s existence and their right to a copy of the trust terms within 63 days of the trust becoming irrevocable (usually upon the settlor's death).
2. Publication to Creditors
Even though the trust is private, Michigan law (specifically MCL 700.7814) requires a successor trustee to publish a "Notice to Creditors" with the local legal news in the event a Personal Representative for an estate has not already published. This is a critical step because it establishes the shortened time frame for creditors to make a claim against the trust assets from several years down to just four months. A delay in publication will ultimately result in a delay in trust administration.
3. Marshalling and Inventorying Assets
The trustee must "marshal", or take control of, all assets titled in the name of the trust. This includes:
Notify banks and brokerage firms of the settlor’s death.
Gathering bank and financial statements.
Consolidate smaller accounts into a single "Trust Account."
Obtaining formal appraisals of trust assets.
Securing real estate and ensuring insurance is up to date.
Continue paying utilities, property taxes, and landscaping costs to prevent "waste" or loss of value.
If the trust owns a business, the trustee must review the Operating Agreement and ensure business remains in good standing.
Once assets are gathered, the trustee must serve an “Inventory” reflecting all trust assets and their value as of the date the trust became irrevocable. Further, once the assets are gathered, a successor trustee cannot simply let them sit. Michigan follows the Prudent Investor Rule, which requires the trustee to manage trust investments as a "prudent investor" would, considering the purposes, terms, and distribution requirements of the trust.
In order to perform essential financial duties like opening a trust bank account, selling real estate, or filing fiduciary tax returns, a successor trustee must first obtain a Federal Employer Identification Number (EIN) from the IRS. This nine-digit identifier replaces the decedent’s Social Security number, as the trust is now considered a separate taxable entity under Michigan law. By securing this number, the trustee ensures they can properly track income and expenses while maintaining transparency with both the IRS and the beneficiaries. For a detailed walkthrough of this process, see our guide on obtaining an EIN for trusts and estates.
4. Payment of Expenses and Claims
Before any beneficiary receives their disbursement, the trustee must also satisfy the settlor's final debts, funeral expenses, and administrative costs. This ensures the trustee isn't later sued by a creditor for mismanaging assets by distributing funds that should have been used to pay a debt.
5. Managing and Selling Real Estate
If the trust contains real estate that is not being distributed directly to a beneficiary, the trustee is also responsible for listing and selling the home. This requires a "Trustee’s Deed" and careful attention to the Michigan Prudent Investor Rule, ensuring the property is sold for fair market value.
6. Final Accounting and Tax Returns
In addition to managing assets, a trustee has an absolute legal obligation to keep beneficiaries informed through a formal accounting. Michigan law, specifically MCL 700.7814(3), specifically states that a trustee has a duty to provide an annual trust accounting to the qualified trust beneficiaries. Maintaining accurate records is a vital protection that helps prevent allegations of mismanagement or breach in the future. For a deeper look at these requirements and how to fulfill them properly, you can read our full breakdown of the duties of a Michigan trustee regarding the duty to account. The trustee must also file the decedent’s final individual tax return and the trust’s fiduciary income tax returns (Form 1041) before administration concludes.
Potential Complications and Contests
Even the most well-drafted trusts can face significant hurdles during the administration process, often stemming from legal challenges or interpersonal conflicts. Common complications include claims of a lack of capacity, where a beneficiary argues the settlor was not of "sound mind" at the time of the trust's creation, or allegations of undue influence, suggesting the settlor was pressured into making specific changes. Furthermore, administration can be derailed by a breach of fiduciary duty, where beneficiaries take legal action against a trustee for mismanaging assets or failing to provide a required accounting. In other instances, ambiguous terms within the document may leave the trustee’s path forward unclear, ultimately requiring a "Petition for Instructions" from the Probate Court to resolve the uncertainty and ensure the trust is executed correctly.
Conclusion
Ultimately, successfully and prudently navigating the trust administration process—from the initial notice to final accounting and distributions—is how a trustee fulfills their comprehensive fiduciary duty during the trust administration process. From creditor notices to complex tax filings, the potential for error is high. Engaging an experienced law firm ensures that the process is handled efficiently and that the trustee remains protected from personal liability. If you are ready to begin the administration process or have questions about your duties, please Contact Thompson Legal to speak with a dedicated professional.
This article is for informational purposes only. It is not intended as legal advice. In the event you would like to speak with a Trust and Probate Attorney, please Contact Thompson Legal at (734) 258-7923 to schedule a consultation.
