Trust Administration

A trust is an arrangement which takes effect during the lifetime of the creator of a trust. A trust avoids probate on any assets that are titled in the name of the trust. The terms of the trust must be revealed to the beneficiaries and heirs when the terms become irrevocable. The terms usually become irrevocable when the creator of the trust dies. A trust may also be set up by a will, which leaves property in trust for a beneficiary. These trusts are called testamentary trusts and are usually irrevocable.

Trustee:
A person or persons who hold legal title to property that is in a trust.

Settlor:
A person or persons who create the trust.

Testamentary trust:
A trust that is created through a will and does not become effective until decedent dies.

What does a trustee need to do when the settlor dies?

When the settlor dies, the trustee has other duties:

Written Acceptance of Trusteeship and/or Certification of Trust: If the settlor was acting as trustee of his or her own trust, the new trustee (called a “successor trustee”) should sign an Acceptance of Trusteeship confirming that he or she has accepted his or her nomination by the settlor to act as the successor trustee.

A successor trustee may also find it helpful to sign a Certification of Trust under Probate Code Section 18100.5 . Either of these may be used in effect as the successor’s “license” to act on behalf of the trust, i.e., one or both of these are often used to prove to financial institutions or other third parties that the person has the authority to act as trustee.

Notice to beneficiaries and heirs: If the trust becomes irrevocable when the settlor dies, the trustee has 60 days after becoming trustee or 60 days after the settlor’s death, whichever happens later, to give written notice to all beneficiaries of the trust and to each heir of the decedent.

The notice must provide this information:

  • The settlor’s name and the date the trust was signed;
  • The name, address and telephone number of each trustee of the trust;
  • The address where the administration of the trust will take place;
  • Any additional information the trust document might require;
  • That the recipient can ask for and receive from the trustee a complete copy of the trust; and
  • That the recipient has a deadline of 120 days after receiving the notice, or 60 days after a copy of the trust is mailed or served upon the recipient, whichever is later, to start a legal action to object to the trust.

For more information, see California Probate Code Section 16061.7.

Notice to Assessor’s Office: If the trust property includes real estate or a manufactured (e.g. mobile) home that is subject to property taxation in California, the trustee must give written notice to the Assessor’s Office of the county where such property is located within 150 days of the settlor’s death.

For more information, see California Revenue and Taxation Code Section 480(b).

Notices to Victim Compensation Board and Director of Health Services: If the settlor may have received health care benefits from the State of California (e.g., from Medi-Cal), the trustee must give written notice of the Settlor’s death to the Director of Health Services within 90 days after the settlor’s death (Probate Code Code Section 215 ).

Further, if any of the any of the settlor’s heirs (e.g., trust beneficiaries) are confined in a prison or other correctional facility, the trustee must give written notice to the Director of the California Victim Compensation and Government Claims Board within 90 days of the settlor’s death (Probate Code Section 216 ).

Inventory and determine value of assets: If there is no court-appointed executor for the estate of the deceased settlor, in most case the trustee must make an inventory and determine the value of all the settlor’s assets as of the date of death (whether or not the assets were in the trust). This may often require formal appraisals of assets that do not have a readily determinable value, such as real estate or business interests.

The trustee does this to see if federal and/or state estate tax returns need to be filed. If they do, the trustee will need to make sure the return(s) get filed and that any taxes owing get paid within nine months of the settlor’s death.

The inventory and valuation of the trust assets are also important for purposes of fulfilling the trustee’s duty to ultimately prepare and submit to the beneficiaries an appropriate written accounting as required under Probate Code Sections 16062-16064 .

Follow trust instructions: The trustee also must do anything the trust instructs (unless what is instructed might be against the law). Often, the trust says the successor trustee will take care of paying for the settlor’s funeral expenses, and the settlor’s outstanding debts (like, recent medical expenses and credit card bills), and then distribute what is left to the beneficiaries of the trust.

Sometimes, the beneficiaries have the right to get most or all their inheritance through the trust within days or weeks of the settlor’s death.

In other cases, the trustee may delay distributing property in order to:

  • Sell property to pay the settlor’s final bills or taxes,
  • Calculate the distribution required by the trust, or
  • Determine if there will be other debts or taxes to pay at a later date.

Some trusts say the trustee cannot distribute the assets for a certain number of years, or until the death of someone else. In these cases, the trustee is responsible for investing the assets of the trust, perhaps making periodic distributions to the beneficiaries (if allowed or required by the trust), until all assets of the trust are distributed to the beneficiaries.

Attend to Tax Issues: Unless there is a court appointed executor of the settlor’s estate (e.g., in order to administer assets that the settlor did not have in his or her trust), as mentioned above, the trustee will be responsible to evaluate whether any estate tax returns are required to be filed, and to make sure that they are properly and timely prepared and filed, and that any estate taxes owing are paid within 9 months of the settlor’s death.

In addition, the trustee will likely have the duty to ensure that the settlor’s income tax returns (e.g., final State and Federal income tax returns for the calendar year during which the settlor died) are duly filed and prepared, and that any income taxes due are timely paid. Further, the trustee will need to arrange for the preparation and filing of the trust’s income tax returns to properly report income that was earned after the settlor died and before the trust assets are all distributed out to the beneficiaries.

Incident to doing this it will usually be necessary to apply for and obtain a new tax ID number for the trust from the IRS (kind of like a “social security number” for the trust). That number should be given to the financial institutions holding the trust’s assets so that each financial institution will ultimately report the interest and dividend income on the trust’s tax ID number (instead of, for example, the settlor’s or the successor trustee’s social security number).

Resources

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