Many Californians have living trusts. The maker of the living trust is called the Trustee (usually parents, uncles, aunts, grandparents, etc). As long as the Trustees are alive, they are in-charge of their trusts. A living trust will usually appoint a successor trustee who will execute the trust in accordance with the trust’s terms when the trustee passes away. These successor trustees are normally the daughters, sons, brothers, sister, etc. A living trust avoids probate. However, there are many steps that must be done to ensure proper execution of the trust, to carry out the Trustee’s wishes, and be in compliance with the California Probate Code. This process is known as trust administration. If you were named as the successor trustee of a living trust and were expected to act as the successor trustee tomorrow, would you know what to do without getting yourself into trouble? This article will summarize the trust administration process, and help you avoid pitfalls along the way.
How to Begin a Trust Administration
California Probate Code Section 16061.7 requires that a formal notice be sent to the beneficiaries within 60 days of the date of death of the trustee. This notice is very important because by sending out the notice to the beneficiaries, the successor trustee can shorten any trust litigation from the beneficiaries from four years to a mere 120 days. This is a very powerful armory for successor trustees to isolate themselves of liabilities from the trust’s beneficiaries. In addition, if a Pourover Will exists, you MUST “lodge” it with the within 60 days of the date of death of the trustee.
Dealing with Real Property
One of the largest assets in a living trust is a house. The successor trustee must follow certain steps in order to vest title in the successor trustee so that the house can be sold and managed. An Affidavit of Death of Trustee along with a certified trustee’s death certificate must be recorded with the county assessor’s office. Because death constitutes a change of ownership, a Preliminary Change of Ownership must be filed with the county assessor’s office within 150 days of the trustee’s death. If the living trust is giving the house to the children or grandchildren then the appropriate exemption form must be filed to retain the old property tax basis in order to save the children/grandchildren thousands of property taxes annually. Unbeknownst to many Propositions 58 and 193 allow the children or grandchildren to retain the old property tax basis. We love this proposition and think its very cool.
Collecting Other Assets & Appraisal
The successor trustee will want to get a tax identification number from the IRS for the trust. It is crucial that all cash and investment accounts be placed in an account under the trust’s tax identification number so that the successor trustee is not personally liable for the income tax. There may be situations where the successor trustee discovers that certain assets were accidentally not placed in the trust; the successor trustee would petition the court to confirm that such assets be placed into the trust so that the successor trustee can administer all the trust’s assets accordingly. After all assets have been identified then the successor trustee might want to get appraisals for the trust assets.
Paying Debts & Taxes
It is the successor trustee’s responsibilities to pay all valid debts and taxes. It is critical that the successor trustee understands California Code of Civil Procedures 366.2. This California law sets a strict 1-year statute of limitation on all unsecured creditors’ claims against the deceased. Therefore, if mom died more than 1 year ago with credit card debts of $100,000 and left a $500,000 home with no mortgage against it, 366.2 says the successor trustee does not have to pay for the $100,000 credit card debts even though there is a house free and clear left by mom if more than 1 year has lapsed since the date of death. This civil code can save the Estate or Trust a lot of money.
If the total estate value is more than $5.4 million then an estate tax will be imposed and the successor trustee would need to file Form 706, which is due within 9 months of the date of death. This is in addition to the income tax return form 1040 for the deceased year of death and form 1041 for income earned by the trust. Because a successor trustee may be held personally liable for the estate’s debts and taxes, it is advisable for him or her to seek professional help in this area of trust administration. Some say that being a successor trustee is a thankless job for this reason because quite often the distribution among the siblings are equal shares but yet the one sibling who is the successor trustee has a fiduciary duty to the other siblings and thus, bears the responsibilities of carrying out the terms of the trust in accordance with the California Probate Codes and the California Uniform Prudent Investor Act.
Accounting and Distribution
After all of the trust assets have been dealt with, taxes are paid, and all debts are paid, an accounting of all the trust’s money has been rendered then the successor trustee will be in a position to distribute the money to the beneficiaries. Successor trustee will need to be mindful of sub-trusts because it is common that the trust dictates certain assets be held in a sub-trust for minors or for other persons. In that case, the successor trustee will need to fund or put assets into that sub-trust.
It is important that the successor trustee understands the trust administration process because the California Probate Codes requires that the successor trustee follow these rules. If you are not familiar with the trust administration process you can get advice from a probate attorney.
As always we hope you have received some value for this information. If you or a friend has a loved one that has passed away or would like to talk to an Estate Planning Lawyer or Probate Attorney in CA call us at (949) 485-9427. We work with the best Estate Planning Attorneys in California.
DISCLOSURE: THE OROZCO GROUP IS NOT A LAW FIRM AND IN NO WAY IS THIS POST MEANT TO BE LEGAL ADVICE. DO NOT RELY ON IT AS SUCH AND PLEASE DIRECT YOUR LEGAL QUESTIONS TO AN ATTORNEY.
