Q. My mother recently died. Her home, bank accounts and other assets were held in a Living Trust. Her financial advisor said we should now see 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 mother’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. A probate is a public proceeding, while administering a trust is typically private. 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 need to be done during a typical trust administration:
Prepare formal, written notice to beneficiaries and heirs in legal format
Identify and protect decedent’s assets
Give formal notice to agencies: Medi-Cal, FTB, IRS
Prepare trust accounting, if required by the terms of the trustObtain appraisals: for tax purposes and for distribution purposes
Identify and value personal property and collectibles; determine if there will be agreement regarding distribution of these and items of sentimental value
- Identify Assets That Can Pass Without Trust Administration, e.g. POD and TOD Accounts, Insurance Policies, Annuities, IRA’s and other Retirement Assets
Lodge decedent’s Will
Ascertain and pay creditors; Deal with disputed Creditors’ Claims
Resolve disputes among beneficiaries
Take title to real property in trustee’s name
Upon distribution, re-transfer title to beneficiaries
- Prepare Claim for Reassessment Exclusion, to maintain decedent’s low property tax, for children
- Where appropriate, take special steps to preserve low property tax on Non Pro Rata Distribution, where one child will take the home and other child(ren) will receive cash. See, article on topic.
Sell real property where appropriate
Handle sub-trust funding if required by the trust
- Determine whether Disclaimers of bequests may be advantageous
File fiduciary income tax returns, if sufficient income
File estate tax returns for larger estates or to elect portability for the surviving spouse
Arrange care for pets
- Maintain financial accounts in insured, interest-earning accounts
- Take action to preserve the value of businesses and professional practices, which sometimes may require taking immediate steps to sell the business or practice
- Determine if any beneficiaries are “special needs” individuals or receive public benefits, such as SSI or Medi- Cal. If so, distribution to those individuals must be handled with special care.
- Determine if trust needs to be reformed to meet with Trust Maker’s Intent, to minimize tax, or to create a Special Needs Trust for beneficiary receiving public benefits
- If decedent is survived by surviving spouse or domestic partner, determine if trust should be amended or restated, and whether terms of trust permit post-mortem amendments by the survivor
- If terms of trust are not clear, consider petitioning the court for instructions to clarify trustee’s duties
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 has a disability and receives public benefits (such as SSI and 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.
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 engage 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.