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 trust or work with Accountant undertaking that task
Obtain appraisals: for tax purposes and for distribution purposes
Lodge decedent’s Will with the Court in the County of Decedent’s Domicile
Ascertain and pay creditors
Deal with any Medi-Cal Estate Recovery Claim for benefits received by the Decedent
Resolve disputes among beneficiaries
Take title to real property in trustee’s name
Upon distribution, re-transfer title to beneficiaries
Assist with Non-Pro Rata Distribution of Home or selected assets where appropriate
Where necessary, arrange interim funding from special lender to assist with Non-Pro Rata Distributions
Deal with Property Tax Issues, such as “Prop 13” & recently enacted “Prop 19”
Sell real property where appropriate
Handle sub-trust funding if required by the trust
File fiduciary income tax returns, if sufficient income or work with Accountant undertaking that task
Assist accountant to file estate tax returns for larger estates or to elect portability for the surviving spouse
Arrange care for pets
Sometimes there are problems with a trust which need to be corrected by either (1) seeking a court order to modify the trust, or (2) via the recently enacted Decanting Act, wherein some changes may now be handled by an out-of-court process. One example of the need for change might involve 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 receiving 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 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.
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