Trust Administration

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and disabled, their families and their property.

Trust Administration

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.

Identify Tax Issues Right Away

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.

Send Notifications

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.

Review the Trust

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.

Understand the Big Picture

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.

Real Property Transfers are A Big Deal

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.

Inventory & Accounting

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.

Tax Filings

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.

Make Distributions

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.

Don’t Reinvent the Wheel

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.

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Why Choose Geisler Patterson Law?

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You Need to Act call when only one spouse dies

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.

When To Call An Attorney

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.

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Trust Administration: The First and Most Important Step

Trust administration is a necessary process that occurs after the death of either one or both settlors. To protect the successor trustees, there are many things that must be done to ensure proper administration.

Fortunately, working with an attorney for trust administration is a straightfprobate attorney burbank caorward process that will give the successor trustees a great peace of mind throughout the administration. Geisler Patterson Law has helped many families with the administration of Trusts and will guide your family through the process.

Trust administration begins with a required probate code notice to all trust beneficiaries and heirs of the settlors. California Probate Code Section 16061.7 states that such notice must be sent within 60 days of the death of a settlor and allows the recipient of the notice to request a copy of the trust. After receiving the mailed notice, the recipient has 120 days from the date of mailing to file a trust contest.

If no contest is filed within a 120 days, then the notice recipient may forfeit their right to file a contest. But if no notice is mailed, the statute of limitations in which a trust contest could be filed is much greater, and could be up to at least four years.

Beware: Many successor trustees who handle trust administration without the advice of an attorney often skip this very important step. The notice required under California Probate Code Section 16061.7 has several requirements, each one of which must be met in order for the notice to be effective.

There’s much more to the notice requirement than meets the eye at first glance. If you are concerned or want to ensure that the administration of the trust is properly handled, please consult with an attorney for legal advice concerning your situation.

As part of the initial trust administration process, you will need to provide your attorney with the decedent’s original will so it may be lodged with the court. California law requires that a decedent’s will be lodged with the court for safekeeping, even if no probate is going to be opened.

In those cases where the trust holds real property, a number of steps must be followed to vest title in the successor trustee so that the property can be managed, sold, or distributed as part of the trust administration.

An Affidavit of Death of Trustee and Consent of Successor Trustee should be recorded against each real property held in the Living Trust. This Affidavit is recorded with a certified copy of the death certificate. When it is recorded, it changes the title of the property from the trustee (usually the settlor) who has died and into the names of the new trustee(s).

Along with this Affidavit, a Preliminary Change of Ownership Form must be completed and recorded at the same time.

This form informs the county recorder why the Affidavit is being recorded. If the Living Trust will transfer the ownership of the real property from parents to children or in any other manner exempt from property tax reassessment, then the appropriate exemption form must be filled out and mailed to the county assessor’s office.

A grandparent/grandchild exclusion is also available for the portion of the property passing to a grandchild if their parents are deceased.

Remember if the owner of Real Property has received Nursing Home Care, or Medi-Cal for any reason the State of California may have a right to recover, if you do not provide the State of California with proper notice there is no limit on the time they have to make their claim.

The notice to the State is often overlooked, the State knows when the people who receive public benefits own real property and they do assert their claims, but as with most government agencies they do not always assert their claim immediately, so if you don’t consult an attorney the State can and will assert a claim against the beneficiaries who received the real property.

Once you have dealt with the real property, you will need to identify all of the other trust assets, e.g. bank accounts and investment accounts, and have the title to those assets transferred into your name as successor trustee. In order to accomplish this, you will first need to obtain a federal tax identification number for the trust.

It is essential that you obtain a federal tax ID number for the accounts that are in the name of the trust so that any income earned from those assets is reported correctly to the IRS.

Beware: Do not use your own social security number as an identification number when administering someone else’s trust, or you will find yourself liable for tax on income earned by the trust, and not by you.

Once you have obtained a federal tax identification number, you should have all trust accounts transferred to your name as successor trustee, using the new identification number.

If you are administering a trust that is splitting into multiple share trusts as part of a distribution plan, be sure to get a separate federal tax identification number for each separate share trust. Don’t use one federal tax identification number for multiple trusts.

Once you have all of the assets identified and under your control, be sure to prepare an inventory of all trust assets and obtain appraisals for trust assets that do not have a readily ascertained value. Assets such as real property should be appraised immediately from the date of death.

As successor trustee, it is your obligation to pay the settlor(s) valid debts and to satisfy any tax liabilities owed.

Taxes can be especially tricky, as there may be estate taxes owed in addition to income taxes, if the estate is large enough. To determine whether a federal estate tax return must be filed for the deceased settler, you will need to add up the total value of the decedent’s estate, including both trust assets and no-trust assets.

If the total value of the estate is more than the exemption amount – currently $5,000,000 – then it will be necessary to file Form 706 federal estate tax return.

However, if the decedent made gifts during his lifetime, the decedent may have already used up a portion of his or her exemption amount and thus even if the estate is less than the exemption amount, a federal estate tax return may still be required.

You will want to work closely with an attorney and an accountant to evaluate whether a federal estate tax return is required. If a return is required, it is highly recommended that you engage a competent professional to prepare the return as the return can be quite complicated.

As successor trustee, you will be responsible for filing the last income tax returns for the decedent. You may also have to file fiduciary tax returns.

A note on income tax consequences: All assets owned by the deceased must be valued as of the date of death. No matter what the value at the time of purchase, most assets (some assets like IRAs, annuities and retirement plans are excluded) receive a “step-up” in basis for tax purposes.

For example, a stock is purchased at a price of $10 but has reached $100 at the time of death. If this stock is sold before death, there will be a capital gains tax on the $90 profit. At death, the stock is revalued so that the beneficiary can sell the stock at $100 without incurring any capital gains tax.

While it often appears that this higher value may be detrimental from an asset tax perspective, the income tax consequences may make the higher estate tax valuation a better deal for the beneficiary.

Because a successor trustee may be held personally liable for unpaid taxes, you will want to work with your attorney and accountant to make sure that all tax liabilities are satisfied prior to distributing the trust assets to the beneficiaries of the trust.

A Living Trust is only revocable while the settlor(s), the person(s) who created the Living Trust, are alive and well. Once the settlors lose capacity or pass away, their Living Trust becomes irrevocable.

The California Probate Code requires that a successor trustee who is administering an irrevocable trust prepare and render an accounting of their actions and administration of the trust.

To satisfy that legal requirement, you must keep detailed accounting records of the trust.

You will need to:

  • Keep track of all the trust money you are spending to wind up the decedent’s final affairs
  • Keep track of all deposits and disbursements from the trust
  • Review the trust document to see what method of accounting is required

Some trust documents expressly require an accounting while others have waived accountings. However, even where a trust document waives an accounting, the law may still require it. So, it is recommended that you consult with an attorney early in the administration process to determine the scope of your accounting obligation.

And even where the trust waives the requirement of a formal accounting, you will still want to keep detailed accounting in case the trust administration goes into litigation.

After all of the assets have been collected, the debts paid, the tax returns filed and the tax liabilities satisfied, the accounting prepared and rendered (if required), you will be in a position to distribute the remaining trust assets. As with all other aspects of trust administration, the terms of the trust document will dictate how the trust assets are to be distributed among the trust beneficiaries.

This may require that you establish sub-trusts for those beneficiaries. As successor trustee, you will need to identify any sub-trusts that are required under the trust document and ensure that those sub-trusts are properly funded.

It is crucial that all subtrusts are properly funded because an improper funding of the sub-trusts can endanger the tax protection afforded to these sub-trusts—plus can result in an equitable distribution to the sub-trust beneficiaries.

It is highly recommended that you consult with an attorney regarding the funding of any sub-trusts prior to making any allocations of assets to the sub-trusts or distributions to any of the trust beneficiaries.

Once you have determined whether there are any sub-trusts that need to be funded and you have identified who the beneficiaries are, you can proceed with allocating and distributing the trust assets.

You will want to document the Distributions and make sure that those who receive a distribution acknowledge receipt of the funds, and either acknowledge that they accept the accounting you have provided or waive the accounting.

In situations where there is acrimony among the beneficiaries or towards the successor trustee, you really need the advice of an attorney.

You may need to prepare a formal accounting of your actions as successor trustee and seek court approval of those actions and of your proposed distribution scheme. By petitioning the court for such approval, you minimize the risk of future litigation, since a beneficiary who does not object in the court proceedings is typically barred from later complaining about your administration of the trust, if you have properly disclosed your actions.

If you do not choose to obtain court approval, a beneficiary generally has three years to object to your administration of the trust after close of your administration

The trust administration process is often complicated and confusing, and can seem overwhelming at times. Many times the process is hampered even further due to the emotions and conflicts that arise among the trust beneficiaries as a result of family dynamics and the grieving process.

If not properly dealt with, these emotions and conflicts often play out in court in protracted and expensive trust litigation.

Geisler Patterson Law can help you avoid such a result by offering you competent and capable assistance throughout the trust administration process.

If you need someone to guide you through the Trust Administration process, call (855) 99ELDER or (855)993-5337 today.