Congratulations! You've been named trustee in someone's trust. This is an important position of honor and trust. It shows that the trust's creator thinks highly of you and your character. But what happens when you become responsible for administering a trust? You might assume that because the revocable living trust avoids the costs and hassles of probate, there is not much after-death administration. Compared to probate, there isn't. However, tax and fiduciary laws still apply. Pitfalls still abound, and they can cost you a fortune.
If you are the successor trustee to a revocable living trust, you have DUTIES. There is a lot you need to do. You should hire a lawyer to help you. But if you want to do it yourself or just know what to do, here is a list of the Duties of a Trustee
Make every effort to identify all the tax issues immediately.
Will the trust be subject to estate tax? Unlikely, (the current exemption amount is over $11,000,000
Will the Real Estate be subject to increased property taxes? Most likely and you are required to notify the Assessor of the change of ownership.
Is there a Qualified Family Owned Business Interest, an S-Corporation, a partnership, an LLC, an LLP or a farming asset in the trust? Make appropriate elections.
Make sure you obtain a new tax ID number for the administrative trust that lasts until all property is finally distributed out of the trust.
You must serve the statutory "Notification by Trustee" under Probate Code §16061.7.
You must also send notification to various government agencies. Be sure to consider whether notice is required by the Department of Social Security, the Department of Veteran's Affairs, the Department of Health Services, or any other payors of benefits to the decedent.
If you fail to record the will and any codicils with the court, you may forfeit your appointment as executor. If there are any disputes between you and the person who becomes executor, you and the beneficiaries stand to lose a ton.
You must review the entire trust and assets and liabilities to identify hot issues, those issues that require immediate action. These can range from the rare (a toxic waste problem on real property) to the common (ownership of stock options). Be sure to consider whether a disclaimer is necessary to avoid losing as much as 55% of the estate. Make sure you identify any errors in the document or in transferring the assets into the trust quickly. Hot issues require immediate attention, and must be identified early.
You have been named the successor trustee of at least one trust. But the decedent's financial life may have included many other aspects that make or break your job. Who was named as executor? If it's you, you must understand the whole picture quickly. If it's not you, you must work with the executor to make sure nothing falls between the cracks of your two areas of responsibility. Start with the following questions: Did the decedent have powers in other trusts? Is there property outside of the trust? Will a probate be required? What does the trust own? Should creditor notices be sent in order to reduce the risk of later claims?
Will the Tru st continue on for several years? Did the decedent leave money to be distributed at specific ages e.g. 25, 30, 35? If so, if the beneficiary is not yet that age, you may need to set up accounts for the beneficiary. Is there a Special Needs Trust? If so then you as Trustee will need to consult with an Elder Law Attorney so that the beneficiary does not lose benefits.
It's only a few pieces of paper, so why worry much about it? Because mistakes here can cost a bundle. Be sure to file appropriate forms for real property including notice to the County Assessor and the State Controller.
In addition if a child wants to keep the property and the benefits of Prop 13, and Prop 53 (lower property taxes on inherited property) you need to consult with a lawyer familiar with the property tax rules so the beneficiary can keep the lower taxes.
You know that you must maintain the trust property in good condition, including payment of any property taxes as they are due. But if you procrastinate on your accounting, you may find out that you missed something too late. That could take a huge sum right out of the trust, or your own pocket. Prepare an accounting of what was in the trust at the date of death and what has happened since. Do it right away. Find out if appraisals are required for any property owned by the trust. Fiduciary rules in California are strict and important. Be sure you understand your responsibilities under law: as the trustee, you will pay for your mistakes out of your own pocket.
Pay property taxes. File the decedent's final income tax return. File an estate tax return if necessary. File trust tax return(s). Quarterly payments may be necessary. Don't delay or the estate (and YOU if it's your fault) could be in for big penalties.
Often the beneficiaries are calling and wanting their money right away. However, distributions are not always as simple as writing a check. You need to make sure that you have done the Inventory and at least a basic accounting, that the time period to contest the Trust has passed and that all beneficiaries sign a receipt for the money, the accounting and that they do not contest the Trust. Where subtrusts, minors or special needs beneficiaries are involved, be sure to obtain the appropriate tax ID numbers, and allocate property among trusts according to the provided formulas, no matter how complex.
Some trustees believe that to do a good job, they must handle everything themselves. But you were named as trustee because the grantor trusts you and wants you at the helm, not because the grantor thinks you are an experienced trust administration attorney. When I help a family create an estate plan that avoids probate, they are always delighted with the savings they achieve over the costs of probate. But everyone at the table expects there to be some costs. I advise clients to choose as trustee someone who cares about the beneficiaries and who is honest and trustworthy, regardless of how little knowledge or experience that person may have in administering a trust. My clients know that the wise trustee relies on professional guidance to steer the minefield of trust administration. The Attorney who has done several Trust Administrations will save you time and money because they have a process to keep you on track and forms for all the required notices.
When a spouse dies the surviving spouse is devastated. The loss of a spouse with whom you have shared most of your life leaves a big hole. Often the survivor gets so caught up in grief and in keeping busy so that they can forget the loss if only for a moment that they do nothing, and since most couples have both names on every account it is easy to go on with out calling an attorney. If your estate is taxable this could cause the estate to completely lose all the tax planning, and when the surviving spouse dies the children pay unnecessary estate taxes. I advise spouses after the death, and for clients enrolled in our TLC Maintenance Plan, they are encouraged to call before making any major decision, since the most painful decisions are those that are made shortly after the death of a spouse.
Contact me for further information about Trust Administration if you face a sticky situation:
You fear that some beneficiaries of the trust may be unhappy with the distribution. In this case, you must be extra-cautious and take advantage of statutes of limitations to protect yourself from emotional claims.
The family is grieving from a very painful loss, and reliance on a calm and experienced advisor will ease the stress of an already difficult time for you and for them.
Any beneficiary is a minor, has special needs, or is incapacitated.
You and the beneficiaries want the confidence and security of knowing that the administration is being handled promptly and according to law.
You have a busy life and know the value of an experienced and caring guide in saving you and the beneficiaries time and money.I invite your call any time, whether or not you find yourself in one of the sticky situations above. Please call (866)452-9657 or email Martha@ElderLawMom for your free initial consultation sooner rather than later. Deadlines, for which you will have to pay out of your own pocket, start expiring 30 days after the grantor's death.