When the person who made a trust dies, the trust needs to be administered by the trustee named in the document in order to manage trust property according to the trust document’s terms and for the benefit of the beneficiaries after the settlor’s death. Effective trust administration requires many steps to be done right. I recommend working with an attorney to help facilitate the process for the trustees who have a tremendous job ahead of them.
Mandatory notice to all the settlors’ heirs and beneficiaries is where trust administration starts. In California, the beneficiary has 120 days to file a trust contest after receiving notice. The beneficiary may forfeit his or her ability to file a contest if the time period runs out. One of the benefits of providing that 120-day notice is to get the clock running so as to prevent claims from being made once they are too late to make.
The trustee will need to inventory all trust assets, such as real estate, bank and investment accounts, and transfer the title of those assets into the trustee’s name as the successor trustee. To do that, the trustee needs to first get the trust’s IRS federal tax identification number so that any income earned from the accounts in the name of the trust is reported correctly.
As to the real property owned by the trust, title must be transferred into the name of the successor trustee so that the property will be handled according to the settlor’s wishes. In California an affidavit of death of trustee needs to be recorded with a certified copy of the death certificate against each piece of real property held in the living trust. This process transfers the property’s title from the deceased settlor to the new trustees. A preliminary change of ownership form is typically provided to the county recorder along with the affidavit. If the trust transfers real property from parents to children or from grandparents to grandchildren by any means exempt from property tax reassessment, the trustee must complete the proper exemption form. Use an attorney to help prepare these documents.
The successor trustee is required to pay the settlor’s liabilities, including credit cards, debts, medical bills, taxes, and possible reimbursement to the California Department of Health Services for Medi-Cal payments. Taxes can be particularly complicated because both estate and income taxes may be owed if the estate is over about $11 million. To assess whether it is necessary to file a federal estate tax return for the settlor, the trustee needs to calculate the value of the decedent’s estate as of the date of death. If the value exceeds the exemption amount (which is adjusted for inflation every year), the trustee must file the federal estate tax return form. Again, work with an attorney or CPA to determine whether a federal estate tax return is necessary.
California requires that the trustee keep a detailed accounting of the trust. This involves using trust funds to wind up the decedent’s affairs, overseeing all trust activity, including deposits and distributions from the trust. From the get-go of the administration, the trustee should meet with an attorney to assess the extent of his or her accounting obligation.
Once the assets have been collected, the debts and the liabilities paid (including taxes and Medi-Cal reimbursements), and the tax returns filed, the trustee should distribute the remaining trust assets to the named beneficiaries in the trust. The terms of the trust document will order how the trust assets should be dispersed among the beneficiaries. If there are not enough assets left to pay the beneficiaries in full, pro rata distributions may be required.