In my previous article, When Trustees in High Net Worth Estates Need Professional Help, I discussed why administering high net worth (HNW) and ultra high net worth (UHNW) trusts often requires the support of a team of experienced professionals rather than relying on a single individual acting alone. The fiduciary responsibilities involved were explored, along with the reasons why these types of estates generally require a fundamentally different approach than the average family trust. What was not covered in as much detail, however, is what the day-to-day and year-to-year reality of administering these trusts actually looks like and why the administrative burden that can come with the role often surprises even experienced trustees.

Once a trust has been established, the work is far from over. In many cases, the ongoing responsibilities that must be managed continue for years and sometimes even decades, depending on the structure of the trust and the assets it holds. This article takes a closer look at the practical side of trust administration by examining the ongoing responsibilities, challenges and decisions that trustees of substantial estates can expect to navigate long after the trust has been created.

How Trust Administration Differs When Managing Complex Wealth and High Net Worth Assets

While the focus on legal duties is essential, what shapes the practical reality of HNW and UHNW administration is the asset snapshot. These estates typically include some combination of closely held business interests, real property in multiple jurisdictions, concentrated equity positions, alternative investments such as private equity or hedge fund interests, art and collectibles, life insurance policies held in trust and interests in family limited partnerships or LLCs.

Each asset class brings its own administrative requirements as follows. Business interests must be monitored and managed. Real property in multiple states requires attention to each state’s laws governing the trust’s authority to hold and manage that property. Art and collectibles must be appraised and insured. When distributed, assets must be valued in a way that is defensible to beneficiaries.                        

The trustee is not required to personally manage each of these assets. Rather, they must oversee their management with the care and skill of a prudent investor. The trustee who delegates investment management to an advisor without maintaining oversight of that delegation, reviewing performance, or evaluating continued performance may not be protected by the delegation.

Tax Planning and Compliance in High Net Worth Trust Administration

Taxation in HNW and UHNW trust administration is an ongoing strategic consideration that intersects with administrative decisions.

At the federal level, trusts reach the highest income tax bracket at a low threshold of approximately $15,000 of taxable income, which makes income distribution planning important in trusts with significant investment income or business distributions. The trustee and the CPA must evaluate whether it is more tax-efficient for income to be taxed at the trust level or distributed to beneficiaries and taxed at their individual rates. For estates with multiple beneficiaries in different tax brackets, this analysis can produce meaningfully different outcomes depending on how distributions are structured.

Estate tax exposure is another active consideration, particularly in estates that were funded before the current exemption amounts were locked in.

Generation-skipping transfer tax is another consideration, especially in dynasty trust structures designed to pass wealth across multiple generations without estate tax at each generational transfer. These trusts require careful tracking of GST exemption allocations and ongoing attention to distributions that could inadvertently trigger GST liability.

The above requires a tax professional with specific fiduciary tax experience who is part of the administration team.

Why Accounting and Record-Keeping Matter in Trusts and Wealth Management

Trust accountings in HNW and UHNW estates are significant documents that record every receipt, disbursement, gain, loss and distribution. These accountings serve as the trustee’s primary defense against surcharge claims.

California law requires trustees to account to beneficiaries at least annually and the accounting must be Probate Code compliant. In complex estates, preparing a compliant accounting requires coordination between the trustee, trust counsel, the CPA, and often the investment advisor.

While accountings can seem like a burden, they offer a protection to the trustee. A trustee who accounts regularly and accurately has a contemporaneous record of every decision they made and why. A trustee who does not account regularly or whose records are incomplete has no defense if a beneficiary later questions a decision from years ago.

Managing Beneficiary Communication During High Net Worth Trust Administration

In HNW and UHNW estates, beneficiary relations are often as consequential as any legal or financial decision. These estates frequently involve multiple beneficiaries across different generations, with divergent interests. Longstanding family dynamics often predate the trust and can be complex to navigate.

The trustee is required to keep beneficiaries reasonably informed of the administration. In practice, the way a trustee can do that varies significantly depending on the trust instrument and the nature of the beneficiaries. Current income beneficiaries and remainder beneficiaries might have competing interests. In one instance, the former wants maximum distributions now, the latter wants assets preserved for eventual distribution. The trustee would do best by balancing those interests without favoring either one.

One of the best ways to manage beneficiary expectations is to communicate frequently and administer the trust with discipline. Informal conversations can create ambiguity about what the trustee has or has not committed to, so it is prudent to rely on formal, written communications instead. However, written communications are subject to discovery in litigation. A trustee who communicates about administration matters without counsel’s involvement risks issues if that communication does not meet applicable legal standards.

By establishing clear communication protocols at the outset, of what information will be shared and how frequently, some of the foreseeable issues may be prevented. For estates with contentious beneficiary dynamics, some trustees engage a professional fiduciary or co-trustee specifically to serve as a neutral point of contact, thus removing the individual trustee from direct conflict.

How Proper Trust Administration Can Help Reduce Litigation Risks

Despite all efforts, even well-administered trusts can become the subject of litigation. In HNW and UHNW estates, the stakes are high enough that disputes are more likely to be litigated rather than resolved informally. A beneficiary who believes they are owed more than they received, or that the trustee mismanaged an asset worth millions, might have financial incentive to retain litigation counsel and pursue the claim.

A well-documented administration becomes the trustee’s best protection. Every significant decision including but not limited to a distribution, an investment choice, the sale of an asset, or a delegation to an advisor, should be documented at the time it is made, with a contemporaneous record of the trustee’s reasoning.

Trustees who find themselves in litigation, or who sense that litigation may be coming, should retain trust litigation counsel.

The Long-Term Reality of High-Net Worth Trust Administration

Trust administration in HNW and UHNW estates doesn’t always have a fixed endpoint. Some trusts are designed to last decades or generations. A trustee who accepts the appointment is, therefore, accepting an ongoing fiduciary relationship wherein they shall invest in the right team, document their decisions, communicate transparently with beneficiaries, and seek guidance when the situation calls for it.

Getting complex trust administration right is about protecting the beneficiaries as well as the trustee. In estates of this size, the right call is not to go it alone.

KJMLAW Partners helps trustees and families navigate the complexities of high value trusts by providing experienced guidance throughout the administration process, from addressing fiduciary responsibilities to managing challenging decisions that arise along the way.

This article is intended for general informational purposes only and does not constitute legal advice. Every trust and every situation is unique.

Lilit Arabyan is a Trust Administration and Estate Planning attorney at KJMLAW Partners. She advises families with both domestic and international property interests, guiding them through the trust administration process with particular attention to tax compliance and asset transfer matters. Her work includes preparing and filing estate and gift tax returns, drafting trust distribution and allocation agreements, overseeing property transfers, and petitioning the court to ensure proper asset titling.

Lilit also represents clients in probate administration, contested conservatorships, and related civil litigation matters. Prior to joining KJMLAW, she served as a Deputy Attorney General for the California Department of Justice, interned at the Business and Tax Section, and clerked for the Honorable Neil W. Bason of the U.S. Bankruptcy Court for the Central District of California.

If you have questions about trust administration or estate planning in California, contact Lilit Arabyan to schedule a consultation.