In estate administration, an entity called an Administrative Trust may be used to temporarily hold assets before they are ultimately sold or assigned to a person or another trust. This type of trust is used to carry out the intention of the decedent as set forth in a trust or will, and to accomplish the provisions of the will or trust in an orderly manner.

Authority
An Administrative Trust may be provided for in a will or living trust. There are instances in which it is obvious that such a trust is necessary and needs to be established, even though not provided for in the trust or will.

When applying for in ID number from the IRS, you would use a name such as “Adams Administrative Trust” for a decedent named Adams, then select “Trust (All Others)” on the IRS webpage when applying for a new ID number.

When is it Useful?
After the first spouse’s death, when assets are to be assigned to sub-trusts (Bypass, Marital or other), the trustees may need time to consider which assets to assign to which trusts, and to accomplish the assignments. If the assignment of assets to the sub-trusts can be accomplished reasonably quickly, there would be no need to establish this interim entity.

Typically, the challenge is to determine taxability of income or gains received after the first death and before assignment of assets is completed. If sub-trusts provide that income is to be paid to the surviving spouse, then the fact that title to assets hadn’t been completed wouldn’t cause concern if the surviving spouse reports all the income on his or her return. There would be an assumption that all income after the death of the first spouse is ultimately taxable to the surviving spouse.

In some situations, sub-trusts might be established, with ID numbers, but there might still be delay in assigning title to assets. With significant delays, it may be beneficial to have a trust entity in existence to take temporary title to property. During that period, the trustees could assure that ordinary income received is distributed to the surviving spouse to have the income included on a personal return, rather than taxed at the trust level. 

After a second spouse’s death, administration usually can be carried out via the existing trusts. The Survivor’s Trust may need a new ID number to operate temporarily until distributions are completed. But if assets in a survivor’s trust, for example, cannot be readily transferred to the heirs, it may be helpful to use an administrative trust in that instance. Accountants with years of experience can recall many instances of assets that have been difficult to transfer.

Income Tax Status
An Administrative Trust will most likely be a complex trust. The language in a trust or will permitting the creation of the Trust would describe its purpose as a short-term conduit for assets ultimately going to trusts or individuals and may not include any language requiring distribution of income to a beneficiary.

Because the trust receives income, and potentially pays tax on that income, the trustees, with help from the accountant and attorney, should find ways to minimize income tax, and can often find ways to distribute income to beneficiaries in a timely manner. Fortunately, a complex trust has the advantage of the 65-day rule under section 663(b).