Probate in California is costly, time-consuming and public.
As a result, living trusts are an increasingly popular tool to avoid probate and maintain privacy.
However, following the death of a trustor (the person who created the trust), there is still a legal procedure to follow, and often an attorney, and perhaps an accountant, is involved. This process is known as a “trust administration” and includes following the terms of the trust and the laws governing trusts.
Our next four columns will focus on trust administration.
When a trustor dies, the trustee of the trust has several duties to which they must attend. What is involved in a trust administration depends on who the beneficiaries are, the terms of the trust and the type of assets a trust holds. First, the trust terms should be reviewed carefully.
Notice of trust administration.
Next, there are notices to be given:
1: The will — usually called a “pour-over” will as it “pours” into the trust any assets not already in the trust — must be filed with the probate court within thirty days of the date of death. This does not start a probate process, but rather wards off anyone else starting probate with an older will.
2: Any beneficiary under the trust who is not also a trustee gets a specific notice under the Probate Code that informs the beneficiary that the trust exists, who the trustee is, and where the trust is being administered. The beneficiary is also informed that they have a right to a copy of the trust on request, and they have 120 days from receipt of the notice to file any claims objecting to the trust or any of its terms.
3: Heirs (the people who would inherit if there were no will or trust) are also entitled to the same notice as beneficiaries. In other words, even if someone is disinherited, they are entitled to a copy of the trust and have the 120-day objection period.
4: Notice must also be sent to the IRS advising as to who (the trustee or the executor of the will) will be handling tax matters on behalf of the decedent.
Tax ID number
Following the death of a trustor, the deceased’s Social Security number is no longer valid. Thus, the trustee must obtain a new tax ID number for the trust.
When a living trust is properly created, the assets are titled in the name of the trust. For example, when Jane Smith creates a trust, the title on her home and her bank accounts will be something like “Jane Smith, Trustee of the Jane Smith Trust dated April 20, 2022.” When Jane Smith dies, documents will be necessary to secure the assets in the name of the successor trustee.
1: A certification of trust is prepared and, when signed by the new trustee and notarized, together with a death certificate, can be used to transfer title on assets (other than real property) into the new trustee’s name. For example, the title would be changed to “Paul Jones, Trustee of the Jane Smith Trust dated April 20, 2022.”
2: An affidavit of death of trustee must also be filed with respect to any real property. Please note that unless there is a surviving spouse beneficiary, the property will be reassessed for property taxes. (Proposition 19 did away with the parent-child transfer reassessment exclusion in all but the narrowest circumstances.)
The value of the assets as of the date of death must be determined and appraisals obtained. The value determines whether an estate tax return is necessary and establishes the income tax basis the beneficiaries will have in the assets.
The decedent’s final income tax return must be filed, as well as an estate tax return if required.
If there is a surviving spouse and the trust says “all assets go to my spouse,” the surviving spouse’s Social Security number may be used. It’s possible that the notices to beneficiaries and heirs won’t be necessary, but that is dependent on the other terms of the trust. The type of documentation needed to change title on assets might be different as well.
If you’re the surviving spouse of a joint trust, it’s important to seek legal advice on the trust administration, even if you believe the trust is simple. The trust may have provisions that require action on your part.
Managing and distributing assets
Following the initial administration steps, the trustee is charged with managing the trust assets, which may include selling or liquidating certain assets.
If the trust calls for immediate distribution to beneficiaries, certain deeds and documents will be necessary to accomplish the distribution after the 120-day claim period expires.
If the trust requires the trustee to hold and manage the assets until a later date, the trust terms must be reviewed carefully to determine the trustee’s duties to the income and remainder beneficiaries, and the specific circumstances under which distributions can be made.
Trusts can accomplish many goals for estate planning, avoiding probate and maintaining privacy. However, there are laws to be followed in administering the trusts, and interests to look out for.
The successor trustee’s job is an important one and often requires the assistance of professionals. Our next columns will delve into this further.
Teresa J. Rhyne is an attorney practicing in estate planning and trust administration in Riverside and Paso Robles, CA. You can reach her at [email protected]