Estate Planning Practice Blog

Firm Attorneys Giving Trust Admin Seminar on July 16, 2008

Partner Mark Doyle and Senior Associate Monica Goel are presenting a Trust Administration Procedures Seminar in Long Beach this coming July.  Click here for more information.

If you are going to administer a trust, want to learn how as a "just in case" or just need to get more education credits (if you are a professional), consider signing up for this seminar. One thing about Lorman seminars is that their printed materials offer excellent how-to/practical advice and steps on the topic being presented.

In the meantime, Mark, Monica and myself are available to handle your trust administration matters as they may come up. Mark primarily works in the Irvine office, Monica works in the Downey office and I work in the Long Beach office. Together, the three of us work as a team to handle your trust administration matters.

Wrapping Up a Trust.

While trust administration is largely removed from any court oversight and is managed privately by the successor trustee(s), it is a good idea to formally wrap up a trust (any trust including a revocable living trust) where the settlor(s) (or creators) of the trust have died.

A Trust Distribution Agreement is designed to protect both the successor trustee(s) and beneficiaries of the trust after the settlor(s) has/have died.  This document is a formal agreement prepared by the successor trustee(s) that covers the following aspects of trust administration:

• Distribution Provisions (as understood by the parties and governed by the trust)
• Date of Distribution
• Proposed Distribution
• Funding Dates
• Preliminary Distributions (if any)
• Consent to Distribution by Beneficiaries
• Waiver of Notice (if appropriate)
• Waiver of Accounting (if appropriate)
• Reserve Amounts (if appropriate)

It should also include language for governing law and appropriate indemnification clauses. Once such an agreement is prepared and agreed upon by the parties, the successor trustee(s) can finalize the trust and distribute the trust assets.

Consult with your attorney about trust administration and preparing a Trust Distribution Agreement to wrap up the trust. It is one of those things that will give you a peace of mind when administering a trust as a successor trustee.

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Estate Planning, Probate and Trusts involve complex areas of law. Individual circumstances must be considered before any advice can be given.  The general information above is not to be construed as legal advice, which can only be given after consideration of the unique facts of each matter. Please seek the advice or counsel of your attorney, financial advisor or CPA as it may be appropriate.

Every Trust Needs a Trustee.

One of the components of a valid Trust is having trustees. The trustee is the person who is managing the assets in the Trust.

If you are alive and well, the trustee of your Living Trust is often the person who has created the trust. So normally a person creates a Living Trust and acts as trustee for their own trust until they are unable to act either by reason of death or incapacity.

Then the successor trustees named in the Trust will step up and manage the assets in the Trust according to the Trust document.

Most people tend to nominate their loved ones to act as trustee.  Here are 7 things to consider when naming a loved one to act as trustee:

    1.     Does your loved one have time to commit to fulfilling the many duties of being a trustee?

    2.     Does your loved one have the knowledge and information necessary to manage the assets in your Trust?

    3.    Are there any terms of your Trust that could present a conflict of interest to your potential trustee?

    4.    Do you have conflicts in your family that could present problems for the trustee?

    5.    Does your Trust hold assets that may force the trustee to make difficult decisions like dealing with a family-owned business?

    6.    Is the cost of a professional trustee a consideration?

    7.    Is the loved one also a beneficiary of the Trust?

These are the kinds of questions you should ask yourself when deciding on who should be trustee. You can also discuss these questions and issues with your estate planning attorney.

Trust Administration: When There is Real Property.

Last week I posted about the most important step in administering a Living Trust after a Settlor has passed away. I am going to start the last week of March about posting about the next step for trust administration where there are real property held in the Living Trust. This is part two of an occasional series on this important topic.

1. An Affidavit of Death of Trustee and Consent of Successor Trustee should be recorded against each real property held in the Living Trust. This Affidavit is recorded with a certified copy of the death certificate. When it is recorded, it changes the title of the property from the trustee (usually the settlor) who has died and into the names of the new trustee(s).

2. Along with this Affidavit, a Preliminary Change of Ownership Form must be completed and recorded at the same time.  This form essentially informs the county recorder why you are recording the Affidavit.

3. And if the Living Trust will transfer the ownership of the real property from parents to children or any other manner exempt from property tax reassessment then the appropriate exemption form should be filled out and mailed to the county assessor's office.

It's a little more complicated than just 1-2-3 as described above, but you get the general idea. The general idea that there's lot to do for trust administration. If you are currently administering a Living Trust, consider hiring an estate planning attorney to assist you through this process.

Trust Administration: The First And Most Important Step.

Trust administration is a necessary process that occurs after the death of either one or both settlors. There are many things that must be done to ensure proper administration. Many of these steps are designed to protect the successor trustees. This is part one of an occasional series on this important topic.

Trust administration begins with a required probate code notice to all trust beneficiaries and heirs of the settlors.

California probate code section 16061.7 states that such notice must be sent within 60 days of the death of a settlor and allow the recipient of the notice to request a copy of the trust. After receiving the mailed notice, the recipient has 120 days from the date of mailing to file a trust contest. If no contest is filed within a 120 days then the notice recipient may forfeit their right to file a contest.

But if no notice is mailed the statute of limitations in which a trust contest could be filed is much greater, and could be up to at least four years.

Beware: many successor trustees who handle trust administration without the advice of an attorney often skip this very important step.

Working with an attorney for trust administration is a rather straightforward process and will give the successor trustees a great peace of mind throughout the administration.

Trust Administration and California Probate Code Requirements.

Administering a Living Trust after someone dies is almost always much easier and, dare I say, more pleasant than probate administration. But, it's not all fun and games. Trust administration for a Living Trust has rules that must be followed by the California Probate Code.

To start, California Probate Code Section 16061.7 requires notification by trustee to beneficiaries/heirs of the person who passed away as the first step.

Some general highlights of Section 16061.7:

1. The notification by the trustee is usually required to be served on each beneficiary and each heir of the deceased settlor.

2. The notification by trustee shall be served by mail to the last known address or by personal delivery.

3. The notification by trustee shall contain the following information:

• The identity of the settlor or settlors of the trust and the date of execution of the trust instrument.
• The name, mailing address and telephone number of each trustee.
• The address of the physical location where the principal place of administration of the trust is located .
• Any additional information that may be expressly required by the terms of the trust instrument.

4. A notification that the recipient is entitled, upon reasonable request to the trustee, to receive from the trustee a true and complete copy of the terms of the trust.

There's much more to this Section than meets the eye at first glance. If you are concerned or want to ensure that the administration of the trust is properly handled, please consult with an attorney for legal advice concerning your situation.

Trust Distribution and Termination Agreement.

Are you currently administering a Living Trust?

Is it time to wrap up the Living Trust by distributing the assets and terminating the Living Trust entirely?

One thing to think about when this time comes, if you have not already retained an attorney to help you with trust administration, is preparing a Trust Distribution and Termination Agreement.

This agreement, when properly prepared, often contains key components of trust administration to include recitals of successor trustees, distribution provisions, distribution of personal property already made, funding at date of distribution values, proposed final distribution, consent from beneficiaries for final distribution, waivers of accounting if appropriate among other clauses that ultimately protects the successor trustee while obtaining an agreement among the beneficiaries for the final distribution of trust assets.

This is the last step of a series of steps that should be taken when administering a Living Trust.

If you have questions, please consult with an attorney for more information. If you like, you can email me or contact TLD by phone at any of the phone numbers listed on the left column.

Beginning Trust Administration.

After someone dies or becomes incapacitated, the successor trustee has obligations regarding administering the trust. These duties are very important and should be followed with utmost care by the successor trustee. Duties include notice, accounting, inventory, appraisal, creating sub-trusts, filing all sorts of taxes and winding up decedent's affairs.

Here's a quick run down of what you might find yourself doing as successor trustee:

Remember this: keeping good records is paramount.

The successor trustee must give notice to the decedent's heirs and beneficiaries if the trust has become irrevocable. If the heirs or beneficiaries request copies of the Living Trust, be sure to send them a copy as soon as possible. The best method for delivering a copy of the document is with a letter sent by certified mail with a return receipt requested.

A Living Trust is only revocable while the settlor(s), the person(s) who created the Living Trust, are alive and well. Once the settlors lose capacity or pass away, their Living Trust becomes irrevocable.

You will want to keep detailed accounting records of the trust. Keep track of all the trust money you are spending to wind up the decedent's final affairs. Keep track of all deposits and disbursements from the trust. Obtain a separate federal tax identification number for the trust as explained in this post a few days ago. Review the trust document to see what method of accounting is required. Some trust documents expressly require an accounting while others have waived accountings. It's always a good idea to have an accounting in case the trust administration goes into litigation.

Be sure to prepare an inventory of all trust assets and obtain appraisals for trust assets that do not have a readily ascertained value. Assets such as real property should be appraised immediately from the date of death.

You will also need to determine if sub-trusts should be created such as a separate share trust for a minor, a bypass trust for a married couple or even a pet trust.

You also need to add up the total value of the decedent's estate to include trust assets and non-trust assets to determine whether federal estate tax returns must be filed on the decedent's estate. If the decedent passed away in 2006, the exemption is $2 million. This means that if the decedent's estate is worth less than this exemption amount then federal estate taxes probably don't need to be filed.

As successor trustee, you will be responsible for filing the last income tax returns for the decedent. You may also have to file fiduciary tax returns.

There's much to do when it comes to trust administration. The terms of the trust generally control the administration so be sure to read the document before doing anything.

As always, please seek the advice of an attorney during this important time.

Obtain a Federal Tax ID Number for Your Trusts.

If you find yourself setting up a bank or brokerage account for a trust, please obtain a new federal tax identification number for that trust.

Obtaining a federal tax identification number (also called an employer identification number) is very easy. With the right information, you can obtain one online in less than 60 seconds. Amazing that the IRS makes it easy with this link.

What does this mean?

Well, if you are handling trust administration after the death of a loved one. Say you were nominated to be successor trustee for your Dad's Living Trust. He passes away. You may need to open a checking account to deposit checks payable to your Dad's Living Trust. Once you obtain a federal tax identification number, you can safely open up a new checking account. This is important because any interest earned by the trust's checking account needs to be reported on behalf of the trust.

Or let's say you are splitting a trust into two separate share trusts as part of distribution plan. Be sure to get new federal tax identification numbers for each separate share trust. Don't use one federal tax identification number for multiple trusts. There's no reason to do so.

Furthermore, if you use your own social security number or another trust's federal tax identification number -- you are misreporting trust income. It's so easy to get this taken care of from the get-go. Can I just say get your own number?