If you have been named a Successor Trustee and the person who set up the trust has passed away, you now have the legal responsibility to ensure the grantor’s wishes are carried out in accordance with the terms of the trust document. However, this process is not as simple as reading the document and following its instruction. California has a very specific process that is required by law which includes notifying trust beneficiaries and heirs at law, ascertaining creditors of the decedent, documenting the change of title to the trust assets, filing appropriate tax returns, preparing an accounting of all transactions, and distributing trust assets as required by the trust agreement.
Why a Trust Administration Attorney
Most people find living trust documents incomprehensible. Regardless of how clearly a living trust is written, there are several steps that must be taken before assets may be distributed from the trust. These steps are most efficiently handled by an attorney who assists the Successor Trustee. The “basic” steps to administration include:
- Notifying beneficiaries – California law requires specific language that must be adhered to when providing such notification
- Inventory and value assets – an asset inventory as well as a valuation must be conducted on all property that is part of the trust.
- Gather debt information – any debts owed by the decedent must be identified and the income or estate tax liabilities must also be determined. It is up to the Successor Trustee to ensure all valid claims are paid prior to distributing any assets of the trust.
- Distribution and accounting – there must be an accounting made to all beneficiaries of the trust regarding all transactions made by the Successor Trustee. The Successor Trustee is also responsible for distributing the assets according to the terms and conditions of the trust.
- Dissolution of the trust – once all the assets are distributed to the beneficiaries as directed, the trust is dissolved.
As you can see, there are a number of steps where mistakes can be made. In some instances, Successor Trustees meet with hostility or disagreements from beneficiaries. If you have been named as a Successor Trustee and need help administering a trust, call the Law Office of Margaret B. Sharp at (310) 841-0357 or use the online contact form to schedule a preliminary consultation.
Frequently Asked Questions
How much can I leave my children without paying tax at my death?
The current (2018) estate tax exemption is $11.2 million per person.
Can I leave my house to my sister without an increase in real property tax?
No. California law allows for an exemption of real property tax reassessment only for transfers between parents and children or grandchildren. There is no exclusion for transfers between siblings.
Can my beneficiaries get my retirement plan tax free?
Retirement plans were created specifically for retirement and are not the best vehicle for inheritance. That being said, a beneficiary may inherit a person’s retirement plan and under certain circumstances can stretch out those tax deferred benefits over the life of the beneficiary; however, annual distributions, based on the beneficiary’s actuarial life expectancy, must be taken and the beneficiary will pay income tax on the amount distributed.
Is life insurance tax free to my beneficiaries?
Life insurance proceeds are paid to the designated beneficiaries without the beneficiary being subject to income tax on the money; however, those proceeds are counted as an asset of the insured and therefore are part of the insured’s estate for estate tax purposes.
What happens when I put my child’s name on title to my house with me?
First, putting your child’s name on title to your house means that you have actually made a gift to that child of an interest in your house. You should file a gift tax return for this transfer if the value of the interest transferred is more than $14,000. Second, you have just opened up your house to serve as a resource for the potential creditors of your child. Third, you have given your child your basis in the property for the interest transferred. This means that upon the sale of that property there will be a potential capital gains tax liability to your child for the portion that was transferred.
I paid for my child’s divorce as a gift to him. What is my gift tax liability?
For all gifts over $14,000 per year per person, you must file a gift tax return. You do not have to send a check to the IRS for the gift tax amount, rather, your lifetime gift tax exclusion, available at your death, is reduced by the amount of the gift tax.
Do I need one or two powers of attorney in California?
State law requires a person to have one power of attorney for his or her medical care and a separate power of attorney for financial or other matters.
Is an agent named in a durable power of attorney legally responsible for debts of the principal?
Assuming that the agent meets the standards of care set forth under California law for fiduciaries, the agent will not be personally liable for the principal’s debts.
Does my college student need estate planning?
Once a student turns age 18, he or she is a legal adult in the State of California. The parents are no longer able to automatically make medical or financial decisions for their child. The child can give his or her parents the legal authority to make medical or financial decisions for him or her upon incapacity by signing an Advance Health Care Directive, for medical decisions and a Durable Power of Attorney for financial decisions. If the child has substantial assets of his or her own, then a Will is also needed.
What is the difference between Advance Health Care Directive and Durable Power of Attorney?
An Advance Health Care Directive is the legal document that gives your named agents the ability to make medical decisions for you in the event that you are unable to make them for yourself. This can happen in emergencies in which you are unconscious or otherwise unable to communicate your wishes, or at the end of your life. The Advance Directive allows you to not only name the people you trust to make medical decisions for you, but it also provides a place for you to give your agent guidelines about what decisions you would make if you were able. Decisions such as resuscitation, life support, comfort or palliative care are all appropriately set forth in the Advance Directive.
A Durable Power of Attorney can be for any other decision or action you want someone else to be able to make on your behalf. Typical matters for a durable power of attorney are real estate transactions, transferring assets to your living trust, conducting banking activities, interacting with your long term care insurance carrier or retirement plan administrator.
The important feature of both the Advance Directive and the Durable Power of Attorney is the word “durable”. That word means that even if you are incapacitated, your agent still has the authority to make decisions for you. Without that word, an agent’s legal authority ends when you become incapacitated.