Your loved one just died. He had a living trust and named you the successor trustee. Now what? This article explains what you need to know and do to administer a California living trust.
The purpose of a living trust is to facilitate a smooth distribution of your estate without probate. California probate is expensive, takes at least a year in court, and exposes your personal information, including your family, assets, debts, and distributions, to the public record.
But even the most thoughtful, well-written living trust cannot survive a successor trustee who cannot handle the job. Under California law, the trustee has what is called a fiduciary duty to the beneficiaries. This is an above-and-beyond duty to follow the terms of the trust and to follow the law. It comes with authority and responsibility. It also comes with consequences. If you do not perform your duties as trustee correctly, you can be held liable by the beneficiaries.
For a deeper look at how California probate works and what it costs, see our post on California probate fees with a probate fee calculator.
Many years ago, Connie called our office. Her father had died three years earlier with a $3 million estate and a living trust. She and her two sisters were the beneficiaries. The oldest sister, Celeste, was the successor trustee.
Within a month of their father's death, Celeste distributed $100,000 to each sister. Then she sold her California home, moved to Oregon, and went silent. No communication. No accounting. No further distributions. Three years passed before Connie finally called an attorney.
When we reached Celeste, we explained that she was in serious trouble. Possible embezzlement, breach of fiduciary duty, financial elder abuse. She had moved accounts to different institutions, but we were able to trace the funds. Most of the money was still intact. She agreed to pay her sisters their fair share plus damages for the delay.
What actually happened? I do not think Celeste intended to steal, although she certainly wasn't above suspicion. The main problem was that she was overwhelmed by the responsibility, did not know what to do, did not think to call an estate planning attorney for help, and froze. She just stopped doing her job.
Even though you have a big responsibility and a big job, you will not be blazing a new trail. The trail is well defined and comes with a guide. The guide is your estate planning law firm, with attorneys who have done hundreds of trust administrations.
Can you complete a trust administration without hiring an attorney? Yes, well, maybe. If it is a very simple estate and you are the only beneficiary, so no one can sue you if you do not follow the rules. In which case, you may be able to DIY and AI your way through it. But most trust administrations are not that simple, and you are going to need help.
Most successor trustees hire an attorney. Why wouldn't they? They weren't chosen because they were experts in trust administration, but because they were responsible, trustworthy, and knew how to get things done. Well, usually. Sometimes the successor trustee is chosen simply because he is the oldest son. But no one expects you to instantly become an expert. As the successor trustee, you have a big job, lots of responsibility, and beneficiaries watching your every move. Why wouldn't you seek help?
There is a lot to do in a trust administration. We have put together our California Trust Administration Checklist you can use as your roadmap. Here is a walkthrough of the key steps.
The very first task is to order death certificates from the funeral home. We recommend ten. More than you may need, but easier to get them now than later from the County Registrar/Recorder.
Next, get the original trust and will. A copy of the trust is usually fine for banks, brokerage firms, the county recorder, and escrow agents. But to lodge the will with the probate court, you need an original. Lodge is an old-fashioned word for file, and yes, even with a living trust, California law requires the original will to be lodged with the local probate court. In El Dorado Hills, that is El Dorado County Superior Court. In Folsom, Sacramento County Superior Court.
This is the big one. California Probate Code section 16061.7 requires the trustee to send a written notice to the decedent's heirs and beneficiaries. Usually, heirs and beneficiaries are the same people: the children. However, sometimes there is an heir who is not a beneficiary, such as when a child has been disinherited. To send the notice, you need the address and phone number of every heir and beneficiary.
The notice must be sent within 60 days of the decedent's death. It must contain the Probate Code language informing recipients that they have a right to request a copy of the trust and that they have 120 days to contest it. In most cases, we include a copy of the trust with the notice.
All bank and investment accounts must be connected to a tax identification number. Your tax ID is your Social Security number. Once you die, the Social Security Administration deactivates it. The practical effect of this is that the decedent's accounts need a new tax ID. Your job is to get one from the IRS. A tax ID that is not a Social Security number is called an Employer Identification Number (EIN).
Once you get the EIN, set up a trust bank account in your name as trustee of the trust. Prepare a Certification of Trust listing the trust name, the decedent's name and date of death, your name and address as trustee, and the EIN. Financial institutions will need this to open the trust bank account. Some will also want a copy of the trust or the IRS Letter CP575 confirming the EIN. Most banks will make you fill out their own Certification of Trust form - why? Because they are a bank and banks like to make things difficult, even though your Certification of Trust has the exact same information.
Your goal is to consolidate all of the decedent's bank accounts into a single trust account, which you will use to pay bills and, eventually, make distributions.
For investment accounts, meaning non-retirement taxable accounts, you need to decide whether to liquidate or keep the investments intact. Our general recommendation is to liquidate. Your responsibilities do not include timing the market. If the account was worth $500,000 when the decedent died, maybe the market goes up in the next few months, but maybe it goes down. You are not the financial advisor, you are the trustee. And if you do not liquidate and the market drops, the beneficiaries will not be happy. The best bet is to liquidate.
Hopefully, the retirement plans, IRAs, 401(k)s, and similar accounts will name individual beneficiaries. If so, contact the financial institution with a death certificate. The beneficiaries will then decide whether to create an inherited IRA or cash out and pay income taxes. Each beneficiary makes her own decision.
Same process with life insurance. Contact the life insurance company and the beneficiaries will arrange for their share of the death benefit. If the trust is the beneficiary, the insurance company will pay the death benefit to you as trustee into the trust bank account.
Keep a spreadsheet from day one with the date-of-death asset values and every expense incurred during the trust administration. When the time is right, you must send the accounting to the beneficiaries for their review.
Do not pay out all of the funds to the beneficiaries right away. You may get a late hospital bill, and now you're out of money. Reserve a meaningful amount for future expenses, tax return preparation, and taxes. Hold back more than you think you will need. After all taxes have been paid and enough time has passed, distribute the balance to the beneficiaries.
Once you have liquidated the investments and sold the home, you may be ready to make distributions. If the 120-day period to contest has not yet run, you can send a waiver to the beneficiaries requesting that they waive their right to contest so they can get paid sooner. Include a waiver of further accounting as well, requesting that they review the accounting and release the trustee from further claims.
Most trusts state that the trustee is entitled to a fee. Take it. You will earn it.
Proposition 19 was a negative game-changer for the parent-child exclusion for California property tax. To keep it brief: under Prop 19, the property tax depends on what the children do with the home.
If a child moves in and makes it their primary residence, the property tax stays the same, as long as the home's current market value is not more than $1 million above the original assessed value.
If the children plan to rent it or use it as a second home, the county reassesses the property at its date-of-death value and resets the tax to approximately 1.2% of that new figure. On a $900,000 home, that is roughly $10,800 per year.
If the children plan to sell, the reassessed tax applies from the date of death until closing, and the trust must pay that supplemental tax.
You will need to file the decedent's final individual Form 1040 tax return. You will also need to file a Form 1041 fiduciary tax return and send the beneficiaries K-1s for their share of the trust income. Hire an accountant to do this.
What I have detailed here is the outline of a basic trust administration. It is not exhaustive. There are often many additional steps. If you hire a law firm experienced in handling trust administration, the attorney will handle most of the tasks I've described.
Some trust administrations are very simple. Some are very complicated. And it is not necessarily a function of the value or complexity of the assets. Many times it gets complicated because the beneficiaries make it complicated, and sometimes over trivial matters, like who gets mom's ceramic fruit bowl.
You may be walking into a storm, but hopefully not. Either way, being a trustee requires solid administrative and people skills as well as good judgment. Do not try to be a hero. Get competent help to make your life easier and to level up the process for the beneficiaries.
At Clark Allison, our attorneys work directly with you through the entire trust administration. No handoff to a paralegal after the first call. Flat fee, so you know the price before you start. We work with successor trustees throughout El Dorado Hills, Folsom, and all of California.
For more, see our California Trust Administration Checklist.
How long does trust administration take in California? Four to six months for a straightforward estate. Contested accountings, real property sales, or business interests can push that out significantly.
Do I have to go to court? No. Trust administration happens outside of probate court. No judge, no hearings, no public record - so long as the trust was funded. For more on funding a living trust click here.
Can I be held personally liable as successor trustee? Yes. Missed notices, premature distributions, or mismanaged assets can all result in personal liability to the beneficiaries.
What is the 16061.7 Notice? The formal legal notice mailed to all trust beneficiaries and heirs within 60 days of death. It starts the 120-day clock for contesting the trust.
Should I liquidate investment accounts? Our general recommendation is yes. Your job is not to time the market. Liquidate, move the funds to the trust account, and focus on your duties as trustee.
Does Proposition 19 affect inherited property in El Dorado Hills and Folsom? Yes. Whether the property tax resets depends on what the inheriting child does with the home. A child who moves in as their primary residence may qualify for a partial exclusion. A child who rents or sells faces reassessment at current market value. The filing deadline is short.
Do I need a trust administration attorney? Most successor trustees hire one and are glad they did. The process has real obligations and real deadlines. An experienced attorney is cheap insurance against personal liability and helps you effectively administer the trust.
Click Get Started or call us (800) 394-1988 to schedule a free 15-minute call with one of our attorneys to see how we can help.
We serve successor trustees throughout El Dorado Hills, Folsom, and all of California. In-person appointments are available at our El Dorado Hills office. We also work with clients from our Roseville, San Luis Obispo, and San Diego offices, and virtually from anywhere in the state.