After Death Trust Administration
After Death Trust Administration is the carrying out of the trust terms in accordance with California Law. A common myth with trusts is that once a trust estate plan is prepared and paid for, there are no more expenses and there is no need to hire a lawyer. This assumption is based upon the fact that trusts avoid probate, but it could not be further from the truth. Although there is no Probate Court involved in administering the trust, there are laws that must be followed. In essence, the Trustee of the trust must carry out a probate without the supervision of a judge. The Trustee is a fiduciary with certain duties to the beneficiaries of the trust that must be carried out properly or risk being sued and held personally liable.
When a Trustmaker dies, usually their name is on all the trust asset titles as a Trustee of the trust. The Successor Trustee must have paperwork prepared that shows what happened to the former Trustee and why the powers of Trustee have passed on to them. Institutions such as banks and brokerage firms will require this paperwork in order for the Successor Trustee to have access to the accounts. The document I prepare for my client's is called an "Amended Certificate of Trust". I also make copies of certain pages of the trust to provide to the institutions - a "Trust Abstract". These documents show the institutions who they are allowed to do business with on behalf of the trust. Without them, the institutions have no duty to help.
If Real Estate is titled in the name of the trust, the Trustmaker's name must be removed from the deed. I prepare a document called a "Affidavit - Change of Trustee" and file it with the county recorder's office. There are other county documents that must be filed as well. The "Preliminary Change of Ownership Report" and the "Claim for Reassessment Exclusion for Transfer Between Parent and Child". Without these documents, the house cannot be sold because the Trustee cannot prove they have the power to sign the deed when the house is sold.
A date of death appraisal should be done for all the real estate titled in the trust by the County Probate Referee. This is done to prepare a written report to give the IRS to prove the Fair Market Value of the property on the date of death. This will help achieve the "Step-up in Basis" that eliminates the capital gain tax otherwise owned on the appreciation earned since the house was purchased. I have never counseled a client who did not want to eliminate unnecessary income tax when the law allows it. For example: if mom and dad bought a house in 1950 for $5,000.00 (the basis) and is worth $205,000.00 (date of death value) on the day the second of them dies, there would be a capital gain of $200,000.00 if the property were sold. The IRS would tax that amount unless the basis is "stepped-up". The report is your proof to them that the basis is stepped-up.
When a Trustmaker dies, their social security number dies with them. I always use a Trustmaker's social security number as the identification number of the trust as do most attorneys. During the after death trust administration, I help the Trustee replace that identification number with a number from the IRS. Institutions, Insurance companies and the like will ask for the new number to Identify the trust.
In California, by law, all the heirs and beneficiaries of the Trustmaker are entitled to Notice that the trust exists, who is the trustee of the trust and that they have 120 days to request a copy of the trust from the Trustee. If the notices are not sent, the statute of limitations is not tolled and the beneficiaries have unlimited time to challenge the Trust and the Trustee's actions. It is in the best interest of the Trustee to send the notice in a timely manor to protect themselves.
A Trustee needs to keep an accurate accounting of their actions when administering a trust. Beneficiaries who are unsatisfied with the actions of the trustee may take them to court. A court may require them to account for their actions. Never leave yourself unprotected as you may be held personally liable to the beneficiaries if they suffered any loss and you cannot prove you did nothing wrong.
When a Trustmaker dies, the person who is holding the Pour-Over Will document has 30 days to "lodge" it with the County Clerk. Also, if Medi-Cal was ever granted to a decedent or a decedent's spouse, a death certificate must be sent to inform them of the death.
Distributions to beneficiaries should be made under the supervision of an attorney. Often, modern trusts contain different types of distribution and not outright gifts. If a trustee fails to distribute correctly, a beneficiary could lose their government benefits, or be harmed in some other way. The cost of hiring an Attorney to help with Trust Administration is small compared to defending yourself against unhappy beneficiaries, government agencies, other lawyers.
Married couples on the first death often have specific issues that must be dealt with properly. Preservation of the Estate Tax Exemption, updating the trust to remove the deceased spouses name off of the assets, having a co-trustee named to help in temporary emergencies and fixing beneficiary designations are some of the issues that need to be addressed.
If you need help with After Death Trust Administration, contact me for a free consulation. You only pay for the meeting if I am hired.