Trust Administration.

Trust administration begins with a notice required by California Probate Code Section 16061.7, sent to all trust beneficiaries and the settlors' heirs. The notice must go out within 60 days of a settlor's death, and a recipient may request a copy of the trust. Once the notice is mailed, a recipient has 120 days to file a trust contest; after that, the right to contest is generally lost. If no notice is ever mailed, the window to contest can stretch much longer.

Many successor trustees who administer a trust without an attorney skip this critical step. The notice has several specific content and service requirements, each of which must be met for it to be effective. Your attorney will also ask for the decedent's original will so it can be lodged with the court — California law requires this even when no probate will be opened.

When a trust holds real property, several steps are needed to vest title in the successor trustee so the property can be managed, sold, or distributed. An Affidavit of Death of Trustee and Consent of Successor Trustee is recorded against each property, together with a certified copy of the death certificate, which moves title from the deceased trustee to the new trustee. A Preliminary Change of Ownership Report is recorded at the same time.

Where the trust transfers real property in a way that is exempt from property tax reassessment, the appropriate exemption form must be filed with the county assessor. Your attorney prepares these documents for your signature.

Once real property is handled, the successor trustee identifies the remaining trust assets — bank and investment accounts and the like — and transfers title into the trustee's name. This first requires a federal tax identification number for the trust, so income from trust assets is reported correctly to the IRS. A successor trustee should never use a personal Social Security number for someone else's trust, which would make the trustee personally liable for tax on the trust's income. If the trust splits into multiple share trusts, each needs its own identification number.

If the decedent failed to move some intended assets into the trust before death, those assets remain part of the probate estate. A will with a pour-over provision can direct them into the trust at death; with the proper documents in place, a simple petition can often avoid a full probate. Your attorney prepares a Certification of Trust identifying the successor trustee and the scope of their powers, which financial institutions use to transfer assets. The trustee should then inventory all trust assets and obtain appraisals for anything without a readily ascertainable value.

The successor trustee must pay the settlors' valid debts and satisfy any tax liabilities. Taxes can be the trickiest part: a large estate may owe estate tax in addition to income tax. To determine whether a federal estate tax return (Form 706) is required, the trustee adds up the total value of the estate — both trust and non-trust assets — and compares it to the federal estate tax exemption. Lifetime gifts can reduce the available exemption, so a return may be required even for an estate below the headline exemption amount; work closely with an attorney and accountant to evaluate this.

Form 706 must be filed within nine months of death, along with the decedent's final income tax return and an annual fiduciary return for the trust. For a married couple, generally no estate tax is payable after the first death because of the unlimited marital deduction; the issue becomes significant at the death of the surviving spouse or a single individual. Because estate assets sometimes must be sold to pay the tax, consult an attorney early so there is time to do so before the nine-month deadline.

Most assets receive a step-up in basis to their date-of-death value, which can reduce capital gains tax for beneficiaries who later sell. Because a successor trustee can be held personally liable for unpaid taxes, all tax liabilities should be satisfied before assets are distributed.

A living trust is revocable only while the settlors are alive and competent; once they lose capacity or pass away, it becomes irrevocable. California's Probate Code requires a successor trustee administering an irrevocable trust to prepare and render an accounting. To meet that requirement, keep detailed records of every deposit, disbursement, and expense, and review the trust document to see what method of accounting it calls for.

Some trusts expressly require an accounting; some waive it. Even where the document waives a formal accounting, the law may still require one — and detailed records remain essential if the administration is later contested. Consult an attorney early to determine the scope of your accounting obligation.

Once assets are collected, debts and taxes are paid, and any required accounting is rendered, the remaining trust assets can be distributed. The trust document dictates how and to whom.

First, determine the beneficiaries. A trust may direct assets outright, or it may require that certain shares be held in sub-trusts — a separate share trust for a minor, a bypass trust, a survivor's trust, or even a pet trust. Sub-trusts are especially common for married couples, whose tax-planned trusts often take an AB or ABC form: when the first spouse dies, the trust splits into a Survivor's Trust and a Family Trust (and sometimes a Marital Trust), keeping the deceased spouse's assets available to the survivor while sheltering them from future estate tax. Proper funding of these sub-trusts is critical — improper funding can endanger their tax protection — so consult an attorney before allocating assets.

For the final distribution, an attorney can prepare a Trust Distribution and Termination Agreement that identifies the successor trustee, recites the distribution provisions and the values used, proposes a final distribution plan, and obtains beneficiary consent and any accounting waivers. The agreement protects the trustee and helps head off litigation. Where there is acrimony among beneficiaries, the attorney may instead recommend a formal accounting and a court petition approving the trustee's actions and proposed distributions — a beneficiary who does not object in that proceeding is generally barred from complaining later. Without court approval, a beneficiary generally has three years to object after the administration closes.