CALIFORNIA TRUST ADMINISTRATION CHECKLIST
Eight Steps That Must Be Taken by a Trustee After Someone Dies
Perhaps you have just faced the pain of losing a loved one, and you are beginning to look at the steps you must take following a death in California.
If you were named as the Trustee of your loved one’s Estate, it can be more than a little stressful going through their things, finding their financials and deeds, paying their debts, paying their taxes, administering the Will and Living Trust they left behind, canceling subscriptions, closing bank accounts, and distributing assets to all their beneficiaries in a fair and legal way.
It’s often a long process, requiring a year or more—so brace yourself and try to relax. This is going to take time and it’s going to take patience. You should also immediately consider getting professional help with trust administration in California through an estate legal firm like ours.
What Does a Trustee Have to Do?
Let’s assume that your loved one left behind a signed Living Trust, along with a Last Will & Testament, which has been structured as a “Pour-Over Will.” If so, you should be enormously grateful. We haven’t space in this article to deal with cases in which no trust has been left behind. Just know that in most states, including California, if there’s no trust, you must go to probate court—even if there’s a Will.
The job of Trustee is a weighty one, and you must either educate yourself deeply in how to administer a trust in California, or hire a firm to administer the trust for you. If, for example, you have now lost both your parents and you have siblings, it will be vital to do everything in your power to be fair and equitable to every beneficiary of your parents’ estate, as well as follow the terms of the Will and Trust—and do your best to prevent friction and misunderstanding among heirs.
Every day our offices work with heirs and trustees who have gotten themselves in a bind, and sometimes even legal trouble, because of the way they have misunderstood the steps they had to take.
If they had come to us earlier, much strife could have been avoided.
So…what does a Trustee do? We can’t cover it all in one article, but let’s get you started and give you a little California trust law outline by looking at eight vital trustee responsibilities. We’ll assume that along with being named Trustee, you were named Executor of the Will.
Step 1: Finding All the Important Documents
Your first step must be simply to locate the Estate Plan and all related documents, which must now be guarded with great care, as they represent everyone’s legal rights and responsibilities to the assets. Indeed, anyone who is a beneficiary may rightfully ask for a copy. If you don’t know where the plan is located, your loved one’s legal firm should have an archival copy.
If the Estate Plan is found before the deceased has been laid to rest, you must also find any written funeral, cremation, burial, or memorial instructions. Usually, these are included in the Trust, and you must locate and guard those carefully. You may have a legal duty to try to execute those instructions to the best of your ability. There could already be a plan in place called a “Pre-Need Plan,” in which case decisions would have already been made. If there isn’t a plan in place, decisions will be up to the people named in the Durable Power of Attorney for Healthcare which is also known as an Advanced Healthcare Directive.
Just as importantly, you must obtain certified copies of the Death Certificate, usually available within 72 hours of a death, arranged by a funeral home, and signed by the attending physician. Order at least six official copies, as you will need these for many purposes. It’s worth the small expense. For some purposes, a photocopy of the original will do, but in many cases you will need an official, certified copy.
Step 2: Listing All Assets, In or Out of the Trust “Box”
As Trustee, it’s now your job to make a detailed list of everything that is held within and was left out of your loved one’s California Living Trust.
You can think of a Living Trust like a box, and the Trust documents like distribution instructions written on the side of that box. As the Trustee, you are now the treasurer, but not the owner of the box. It’s your job to guard the box and distribute the contents to the “Beneficiaries” named in the Trust. One of those beneficiaries maybe you, but being the Trustee gives you no more right to the assets in the box than other beneficiaries.
Let’s take a quick look at the “box” of a Living Trust.
Assets, including real estate, bank accounts, and brokerage accounts were put into the box we call a Living Trust to make them easy to pass on to the trust’s beneficiaries—without any court involved. The Trust document instructs the Successor Trustee what to do with the items in the box after someone dies. Assets were “put” into the box by deeding real estate to the trust, and by the changing the account holder on a financial account to the name of the trust.
Since personal items like furniture do not have deeds or documents of title, that important separate document, the “pour-over will” transfers those items to the trust. A properly structured Last Will & Testament tied to a trust will do just that.
Your list must include all these deeds, bank accounts, retirement accounts, credit card accounts, utilities, loans, life insurance policies, investments, contracts, business assets, utility bills, mortgages, personal loans, tax returns, medical bills, as well as the funeral bill. Indeed, if the loved one’s records aren’t perfect, you may not find out about some debts and assets until months later, when all the statements have come in the mail, or creditors realize your loved one has died.
As you begin to make your list, you may realize that some things are not in the trust which should be, and that those items will take special attention, and may even be a huge problem.
If we’re talking about your parents, and your parents were wise, they would not have put their IRA accounts into the trust. Inherited IRAs are a subject too complex for this article, but know they are fraught with danger, and like life insurance, generally should not be placed in a Living Trust. Click here for more information on IRAs.
On the other hand, your parents might easily have accidentally left a real property out of their trust. Errors like this definitely require the help of an attorney, and you need to contact one immediately.
We’ll talk more about things “not in the box” near the end of this article.
As you make your list, remember that you need keep it available to the other beneficiaries of the trust, such as your siblings. Make sure that everything you do is transparent to them.
Step 3: Carefully Review the Provisions of the Will and Living Trust
As Trustee, you must read every document in the Estate Plan very, very carefully. Recognize that when all the original grantors passed away, the trust immediately became irrevocable. Even though you are now the Trustee, you cannot change it, and you are legally bound to its provisions. Keep some key questions in mind as you read:
- Are there special instructions regarding the loved one’s funeral, cremation, or burial?
- Who gets the loved one’s personal effects?
- Who gets any specific bequests?
- Who gets the loved one’s residuary trust?
- What was the date and location where the trust agreement was signed?
- Who signed the trust as witnesses and Notary Public?
The savvy move is to write down a summary of these and other important points that you can refer to easily.
You may realize that some things are not in the trust which should be, and that those items will take special attention, and may even be a huge problem.
Within the Estate Plan, you will probably find “Powers of Attorney” documents. These become irrelevant as soon as someone dies—but never throw any such documents away.
Step 4: Consider Meeting with a Trust Attorney
Yes, it’s possible to do this yourself, but you can and should work with a qualified Trust Attorney to help you with California Trust Administration on anything but the simplest estates. Not only will you spare yourself enormous hassles and errors, but working with an attorney will greatly reduce your personal liability as the Successor Trustee.
After a death, an Estate Firm that does Trust Administration can help immediately by:
- Determining the accurate value of the estate.
- Resolving any outstanding debts and expenses.
- Strategizing on reducing or eliminating estate and other taxes.
- If in California, working to prevent a reassessment of real estate under Proposition 13.
- Fully administering a trust in conjunction with the family’s existing advisors and fiduciaries.
- Strategizing on the complex issues involving retirement accounts.
- Distributing assets to the proper beneficiaries as quickly and efficiently as possible.
Do you really need to pay an attorney? Well, as you might already see, there are a lot of important things you really don’t want to get wrong. Getting them wrong could lead to lawsuits, enmity among siblings, and worse.
Plenty of estates are completely lost to legal fees among siblings as they fight things out in courts.
Without professional help, it’s pretty easy to improperly account for assets, or get things like date-of-death values wrong. It’s also pretty easy for some terrible tax disasters to occur, especially with things like retirement accounts.
In any but the simplest situations, acting as Trustee can also take up a lot of your time.
Step 5: Value the Assets as of the Date of Death
A vital responsibility of a Trustee is to establish date-of-death values for all your loved one’s assets. You can see how time will be of the essence in this job.
All financial institutions where the deceased’s assets are located must be quickly contacted to obtain these date-of-death values. For assets including real estate, personal effects including jewelry, artwork, collectibles, and closely held businesses, that’s a different job—possibly requiring a professional appraiser.
We’re talking about the value of everything, here. The value of all of the decedent’s assets will need to be established, including those passing outside of the trust, in order to determine if any estate taxes or inheritance taxes will be owed, as well as increases in value after the date of death, when assets are liquidated.
Assets likely to move outside of the trust may include life insurance, IRAs, 401(k)s and annuities with named beneficiaries.
Step 6: Pay the Bills of the Person Who Died
Yes, the bills of someone who has passed away must be paid. The estate owes this money, not you, but all those debts must be settled before there can be a distribution of anything to yourself or the other beneficiaries. And yes, that will delay a distribution—another reason to seek professional help.
This is also the time that you, as the Successor Trustee, will need to evaluate whether trust assets, such as real estate or a business, should be sold. This is your sole decision as Trustee, and often it’s the best way of creating an equitable distribution for multiple heirs—though again, you should seek professional advice.
The Trustee is also responsible for paying the ongoing expenses of administering the trust, such as legal fees or accounting fees. Then there are ongoing expenses like utilities, insurance premiums, mortgage payments, and homeowner or condominium association fees.
In many cases, you may draw a small stipend from the estate for the work you are doing in all this, and of course the estate should pay administrative expenses. But proceed with great caution in this area, and again seek professional advice, as you do not want to trigger questions from other beneficiaries or create liability for yourself.
Step 7: Pay the Taxes of the Deceased and of their Estate
As Trustee, you are now responsible for filing your loved one’s final tax return. Then, if the Estate earns any income at all after their death, you must file a separate tax return on behalf of the Estate, both state and federal.
Absolutely do not try to file these returns without the professional help of a qualified CPA, as it must be done correctly and within legal parameters you are not equipped to understand.
Step 8: Distribute the Remaining Assets to the Beneficiaries
One of the very last steps, only to be taken after all of the above has been settled, is to actually distribute trust income or property to trust beneficiaries, including possibly yourself, strictly according to terms of the Will and trust.
Do not distribute anything, even mementoes and cash you find in drawers, without all the above taking place.
Distributing the assets can be a big job. You need to have a clear accounting available for all the beneficiaries. You will need to complete transfer deeds and other change-of-title documentation. You will need to work closely with each financial institution involved.
Once again, to avoid problems, including personal liability for screw-ups, we strongly advise you to work with an estate or Living Trust Attorney along with a good accountant, and if the assets are significant, a financial advisor.
What If An Asset Is Not In The Box? Distributing PODs and Approaching Probate
You will recall that when we created our list way back in Step 1, you may have found a number of assets which had never been put into the “box” of the trust. Let’s go back and talk about that now.
Certain assets, like bank accounts, retirement accounts, and investment accounts may have stayed in the name of the deceased, rather than going into the Trust. These may have been structured with PODs, or payable-on-death beneficiaries. If so, you must work directly with the financial institution on how to fulfill those PODs. But even though you are Trustee of the Living Trust and Executor of the Will, you have no power to manage that process or prevent other beneficiaries from exercising their rights over such accounts. It’s between them and the financial institution. You should, however, try to meet with all the beneficiaries and discuss the options—preferably with the help of a California Estate Attorney.
You can think of a Living Trust like a box, and the Trust documents like distribution instructions written on the side of that box. As the Trustee, you are now the treasurer, but not the owner of the box.
If you and other beneficiaries are inheriting IRA or other retirement accounts, please realize immediately that these are fraught with issues and require careful education and management. Click here to learn more about these issues.
For many asset types not included in the Trust, including real estate, you will need to talk to an attorney immediately, and in order to get control of such assets you may very well need to open a court-administered probate.
The probate experience does vary greatly state by state. As California Estate Planning Attorneys who handle probate, we can give you a little good news: California has implemented an easier and expedited court procedure which can transfer certain assets into a trust after a death so that the estate can be administered without further delay.
How to File a Heggstad Petition in California
Let’s say that your mother inherited a home from a sibling which was never put into her Living Trust. Or the home was pulled out of the trust at some point for refinancing.
California Courts allow what is known as a Heggstad Petition, named after a case, Estate of Heggstad, (1993) 16 Cal. App. 4th 943, which first discussed the concept.
Using the Heggstad case as precedent, courts allow Trustees to file an administrative petition asking that assets found outside of the trust be properly transferred to the trust. The petition must show that the specific asset is mentioned in the trust, and that the trust creator (called a “Trustor” or “Grantor”) intended that the property be in the trust. Courts will look to language in the trust specifically mentioning the asset.
In some trusts, the real property is not specifically mentioned. A recent case called Ukkestad v. RBS Asset Finance, Inc. (2015) 235 Cal. App. 156 loosened the requirement that the asset be specifically mentioned if the trust states that “all personal and real property…wherever situated” be held in the trust.
The Ukkestad case makes the process easier, but it’s still preferable to have a specific reference to the assets subject to the petition. As Ukkestad is a relatively recent case from 2015, it’ll take some time to see how other courts will interpret and implement this rule of law.
What You Don’t Know Can Hurt You
Please be aware that we have not given you a comprehensive checklist for your new and vital role as Trustee—we’ve just sketched out the highlights.
We’ve not touched on some of the obvious additional issues: online accounts, subscriptions, life insurance policies, and so forth will all need to be dealt with. The exact timing of closing or transferring bank accounts, for example, will be vital.
Indeed, no full-length book could offer a full checklist of all the possible issues—and errors—that can come up for Trustees—and unfortunately, many new trustees get far into the process before they realize they’ve gone off track and need an attorney to help out.
All too often that happens only after siblings have become estranged, unnecessary taxes have been paid, and laws have been broken.
Whether or not you call our firm, we urge you not to try to handle this by yourself. No “California Trust Administration Practice Guide” or “Dummies” book can safely get you through this on your own.
Can I Get Out of Being the Trustee of My Parent’s Trust?
If you’ve been reading this article and you are now thinking, “do I really have to do this” you should also know that you have no legal obligation to accept the role of Trustee, no matter the wishes of your loved one.
Most trusts name successor Trustees if the first decides not to serve. Or you may seek the help of a lawyer in having a new Trustee named, including a professional Trustee.
What Do We Do?
CunninghamLegal has more than 25 years of experience handling the intricacies of California trust administration, and we would love to help you get this right—so that the legacy of your loved one brings support and comfort to the living, instead of hassles and heartache.
We have offices throughout California, and we offer in-person, phone, and Zoom meetings. Just call (866) 988-3956 or book an appointment online.
Please also consider joining one of our free online Estate Planning Webinars.
We look forward to working with you!
James Cunningham Jr., Esq.