Q. My father recently died. His home, bank accounts and other assets were held in a Living Trust. His financial advisor said we should now engage a lawyer to help with trust administration. What? I thought if you had a Living Trust that there was little or nothing to do following the death of the trust-maker? Is that not so?
A. Your father’s financial advisor is correct. One of the most common misconceptions among those who have established a Living Trust is that there is little or nothing to do following the death of the trust-maker. In fact, depending upon the nature of the assets, there is often quite a bit to do.
Think of it this way: many people create Living Trusts in order to avoid a formal probate proceeding, which many people correctly understand to be a cumbersome, time-consuming process overseen by a judge in court. By comparison, administering a trust following death involves many of the same processes, except that it is controlled by a trustee in an out-of-court process called ‘trust administration’. Further, a probate is a public proceeding, while administering a trust is typically a private matter. Still, even with trust administration there are things to do and laws to follow.
While everyone’s situation is different, here is a partial list of things that should to be done during a typical trust administration:
Prepare and send formal, written Notice to Trust beneficiaries and heirs in legal format;
Identify and protect decedent’s assets;
Lodge decedent’s Will with the Court;
Give formal notice to agencies: Medi-Cal, FTB, IRS, Social Security; VA
Prepare and file a Change of Ownership Statement with the Assessor in each county where the decedent owned real property;
Prepare a trust accounting, if required by the terms of the trust;
Obtain appraisals for tax purposes and for distribution purposes;
Ascertain and pay creditors;
Advise Beneficiaries about any “Disclaimer” option;
Resolve disputes among beneficiaries;
Manage real property in the trustee’s name;
Petition Court, where necessary, to move “omitted assets” into Trust pursuant to Decedent’s “pour-over” Will;
Where appropriate, sell real property & distribute the proceeds to trust beneficiaries;
Transfer Real Property by Deed to designated Beneficiaries, where appropriate;
Handle sub-trust funding if required by the trust;
Take Steps to Preserve Prop 13 Property Tax Rate for Home Where Appropriate;
Engage Tax Professional to File fiduciary income tax returns, and Estate Tax Returns if required for larger estates, or to preserve tax portability;
Arrange care for pets;
Sometimes there are problems with a trust which need to be corrected by seeking an appropriate court order. One example would be a trust prepared years ago, when tax laws were different, which should now be revised to comport with new tax law. Another example: where a trust leaves assets to a beneficiary who is now disabled and receives public benefits (such as SSI and/or Medi-Cal), and whose bequest should, instead, now go into a Special Needs Trust for his benefit so as not to disturb the continuation of those benefits. Where these issues appear, the trustee must also consider whether to seek a post-mortem trust modification via a Court Proceeding, or via the newer out-of-court Decanting Process. Another example is where asses were not re-titled into the name of the trust during the Decedent’s lifetime, and now need to be formally made a part of the trust, so as to fully implement the Decedent’s wishes and consolidate administration (handled via a so-called ‘Heggstad Petition‘).
While the rules regarding trust administration are generally more relaxed than those governing a probate proceeding, nevertheless it is wise for the successor trustee to consult with an attorney knowledgeable in these matters, so that he or she can be properly advised and avoid tripping over legal requirements. Remember: the successor trustee typically has a fiduciary duty to honor the terms of the trust, comply with relevant law, and deal fairly with the designated beneficiaries.
We recommend that all successor trustees seek appropriate legal guidance so that they discharge their duties lawfully, minimize family disputes and avoid creating liability for themselves.