How do you dissolve a trust after someone dies? What are the legal steps to settle a Living Trust? What does a Trustee need to do after the Grantor’s death? How can you avoid probate, tax penalties, and lawsuits when administering a trust in California? What happens to real estate, IRAs, and life insurance when someone with a trust dies? Can a Trustee distribute assets right away? Do you need a lawyer to settle a trust?
By James L. Cunningham Jr., Esq.
Settling a trust after the death of a loved one can feel like trying to defuse a bomb with a blindfold on—and the stakes are enormous. People often assume that because Mom or Dad created a Living Trust, there won’t be much to do when they pass away. No court. No lawyers. No drama. No stress. Right?
Wrong.
I’m a Trust and Estate Attorney with over 30 years of experience helping California families avoid disaster and preserve generational wealth. And let me tell you, dissolving a trust the wrong way can blow up in your face. It can land you in legal hot water, alienate family members, spark lawsuits, trigger unnecessary tax bills, cause loss of valuable Proposition 13 tax benefits, and cost tens of thousands of dollars. Done right, however, settling a trust protects everyone—and keeps the peace.
CunninghamLegal offers assistance in Trust Administration, providing the legal guidance to help you take the right steps to close a trust properly and expeditiously. Please consider contacting us right away when you become the Trustee of an Estate in California. You can use the form on this page, call us at (866) 988-3956, or click here to book a free call with a client specialist.
So what does “settling a trust” actually mean? What steps must a Trustee take after the death of the Grantor?
What Does it Mean to Settle or Dissolve a Trust in California?
Settling (or closing out) a trust after death in California means carrying out the legal, financial, and administrative steps necessary to wrap up the affairs of the deceased Grantor. The Grantor is the person who created the trust. Settling the trust means you’re implementing their instructions as written in the trust—and you’re doing it in accordance with state law.
This includes:
- Identifying all the trust’s assets
- Managing outstanding debts, taxes, and expenses
- Providing formal notice to all interested parties
- Filing appropriate tax forms and government paperwork
- And lastly, distributing the trust property to the Beneficiaries
In lawyer-speak, this process is called “Trust Administration.” But that phrase means nothing to most people. What matters is that someone has died, and someone else—perhaps you—is now legally responsible for carrying out their wishes. That person is called the Trustee.
Who Is in Charge of Dissolving a Trust?
The Successor Trustee is the person named in the trust documents to take over when the original Trustee (usually the Grantor) dies or becomes incapacitated. The “successor” title drops as soon as you begin acting in the role of Trustee.
CAUTION: Most people don’t know that Trustees have 100% personal liability for what goes wrong. That’s right. If you’re the Trustee, you can be sued by Beneficiaries. You can be penalized by the IRS. You can be fined by the county tax assessor. And the kicker? You can be held liable even for mistakes you didn’t know were mistakes.
This is not a ceremonial role. This is a job.
So, if you’re going to serve as Trustee, buckle up. You need to be organized, meticulous, cautious, and legally savvy. You need to understand that you are now the “fiduciary”—a role that carries both power and peril. Here’s a blog and webinar on the risks of being a Trustee. You can also hire a lawyer (like CunninghamLegal) to help with Trust Administration while you remain the Trustee in name. This can help protect you and help you complete all the steps of a Trust Administration properly.
What If I Don’t Want to Be a Trustee?
If you don’t want to serve as Trustee of a trust, you’re not obligated to do so. If the responsibility is too much, or you live out of state, or you just don’t want the drama, you can formally decline. The trust document should name an alternate. If not, a court can appoint one. Again, I suggest you consult a qualified lawyer, like those here at CunninghamLegal.
What are the Key Steps in Dissolving a Trust?
The five key steps in dissolving a trust are:
- Identify and Understand the Terms of the Trust
- Identify the Key People: Trustee, Beneficiaries, Heirs
- Identify and Take Control of the Assets
- Wind up the Grantor’s Affairs and Give Notice
- Distribute the Assets (But Only at the End!)
Before we dive into the details, I should say that these steps don’t necessarily happen in perfect order. Some of them happen concurrently.
Think of this less like a staircase and more like a construction site—some crews are laying the foundation while others are framing the walls. Steps one and two typically come first, but steps three and four often happen side-by-side. The final step—distribution—always comes last. That’s critical. If you jump to step five too early, you could end up making costly mistakes you can’t undo.
1. Identify and Understand the Terms of the Trust
Start by gathering all original trust documents, amendments, and restatements. The most recent restatement—if there is one—overrides earlier documents. If there have been multiple amendments, things get murky.
Example: Able creates a trust in 2000 and amends it in 2010, 2014, and 2020. Which version controls? It depends. A lawyer may need to create an Abstract of Trust—a summary showing which terms are current and binding.
Best practice: If the Grantor is still alive and the trust has been amended more than once, consider executing a Restatement of Trust. This replaces all prior versions and simplifies things dramatically for future Trustees.
A clean set of documents makes your job as Trustee far easier—and may prevent litigation later.
2. Identify the Key People: Trustee, Beneficiaries, Heirs
The second step in settling a trust is to identify all the key players involved. This step is more nuanced than it may seem. Who is the Trustee? Who are the Beneficiaries? Who created the trust, and what happens if someone named in the trust is no longer living? What about ex-spouses?
Let’s start with the Successor Trustee—that’s you, right? But how do you prove it? You’ll need a document called a Certificate of Trust (also known as a Certification of Trust). This is a streamlined, notarized summary that identifies the trust’s name, date, taxpayer identification number (that can be obtained by filing a Form SS4 with the IRS), and the current acting Trustee, along with their contact information. Under California law, institutions are required to honor this certificate instead of demanding a full copy of the trust—but some will still ask to see the entire trust document, especially in real estate transactions. Title companies are particularly cautious.
Next, you need to confirm the Beneficiaries. That might seem simple—just read the trust, right? Not so fast. Suppose Charlie names Delta as his Beneficiary, but Delta has already passed away when Charlie dies. Now what? You’ll need to dig deeper into the trust. A well-drafted trust will include a clause like, “If Delta does not survive me, then her share goes to Echo.” But if the trust doesn’t provide a clear alternate, things can get complicated quickly. Consult a qualified estate lawyer like those at CunninghamLegal.
Know that the person who created the trust may be referred to by several different terms: Grantor, Trustor, Settlor, or even Trustmaker, Maker, or Donor. They all mean the same thing in this context. Just be aware of the variations so you’re not confused by inconsistent terminology across documents.
3. Identify and Take Control of the Assets
One of your most important jobs as Trustee is to identify all the assets the deceased owned. This isn’t something you can do halfway. You need to be thorough because missing an asset could mean tax problems, legal trouble, or angry Beneficiaries down the road. It’s your responsibility to track down every parcel of real property and every other category of wealth that belonged to the person who passed.
Assets come in many forms, including: real estate, retirement accounts, bank accounts, health savings accounts, annuities, cash, safe deposit boxes, stock or bond certificates, LLCs, timeshares, vehicles, life insurance policies, digital wallets, cryptocurrency, foreign assets, art, collectibles, and more. And yes, it’s often the Trustee—you—who has to chase it all down and create a master inventory list.
This step is a biggie and may take quite some time. You must:
- Identify every single asset owned by the trust
- Secure control of those assets (title, accounts, keys, etc.)
- Inventory and appraise them
- Get a new Tax ID number for the former Living Trust (again, Form SS-4 from the IRS), which has now become an irrevocable trust on the death of the original grantors.
- Keep accurate records from Day One
Assets titled in the name of the trust belong to the trust. Examples include:
- Real estate (“Jane Smith, Trustee of the Smith Family Trust dated…”)
- Brokerage accounts
- Bank accounts
- LLC or S-Corp interests
- Personal property specifically listed in the trust
Some assets don’t really belong in a Living Trust, but may have been named in the trust anyway. This can get confusing:
- IRAs, 401(k)s, and other retirement accounts
- Annuities
- Life insurance proceeds
- Pay-on-death or transfer-on-death accounts
These assets typically pass directly to named Beneficiaries listed at the financial institutions themselves, but they still count toward the overall estate value and may affect estate taxes. Ignoring these assets is a major rookie mistake.
Word of warning: If the Grantor refinanced their home and forgot to retitle it into the trust, that property may be subject to probate. And that’s not a fun surprise.
4. Wind up the Grantor’s Affairs and Give Notice
This step can be highly complex—doing it wrong can expose the Trustee to legal liability. You’re not just tying up loose ends; you’re fulfilling important legal duties that put everyone on notice and protect the integrity of the trust.
Who Needs to Be Notified as a Trust Is Settled in California?
Under California Probate Code §16061.7, the Trustee must send a formal written notice to all Beneficiaries named in the trust and any legal heirs, even if those heirs aren’t named in the trust at all. You have 60 days from the date of death to get this done.
These notices must include:
- The identity of the deceased (settlor) and the date the trust was created
- Your name, address, and phone number as Trustee
- The location where the trust is being administered
- A statement informing the recipient they have the right to request a copy of the trust
- A clear, bold, minimum 10-point-font warning that reads:
“You may not bring an action to contest the trust more than 120 days from the date this notification by the trustee is served upon you or 60 days from the date on which a copy of the terms of the trust is delivered to you during that 120-day period, whichever is later.”
Notices are typically sent by certified U.S. Mail, and electronic delivery is only valid if the recipient consents in writing. Always keep proof of service.
Should You Include a Copy of the Trust When Sending Notifications to Beneficiaries?
When sending notifications to beneficiaries, whether or not to include a copy of the trust is a strategic decision for you. You’re not legally required to include the trust document with the notice, but doing so starts the 120-day clock for contesting it. If you don’t send the document, and someone requests it on Day 119, they’ll get another 60 days to challenge it.
On the other hand, once you send out the trust document, it’s “in the wild,” which means a disgruntled heir could post it online or stir up conflict.
Also important: if the trust has a Restatement, you’re only required to notify the people named in the Restatement and its amendments—not in prior, superseded versions.
Don’t Forget the “Intestate Heirs” When You Settle a Trust
It bears repetition that the Trustee of a trust must notify all Beneficiaries and legal heirs. Even if someone isn’t named in the trust, and if they would have inherited under California’s laws of intestate succession, they must receive a notice. That’s your responsibility as Trustee—and yes, it can involve some homework. This might include estranged children, stepchildren, or even distant relatives.
Real Estate Notifications and Property Reassessment When Settling a Trust
When a property owner dies, there is a change in ownership—even if the title is held in trust. This typically triggers reassessment under California’s property tax rules and may cause the loss of Prop 13 protection.
You must file an Affidavit of Death of Trustee in the county where the property is located, not necessarily where the decedent lived. This affidavit should be accompanied by a redacted death certificate that omits the Social Security number, since it becomes a public record.
Want to keep your death certificate private? If you’re the Grantor and near the end of life, you can resign as Trustee and allow your Successor Trustee to step in prior to your death. This avoids the need to record your death certificate later.
In addition to the affidavit, you must also file a Change in Ownership Statement with the County Assessor for each parcel of real property. So if the decedent owned three homes in three different counties, you’re filing three different statements. Got ten properties? That’s ten filings.
Why do some people in California put property in LLCs? Beecause if a trust owns 100 parcels of real estate directly, that’s 100 filings upon death. But if the trust owns shares of LLCs—and the LLCs own the real estate—that might reduce the paperwork. Just beware: if there’s a change in control of the LLC, you must file a BOE-100 Statement of Change in Control with the California Board of Equalization within 90 days.
Trying to figure out how to dissolve a trust after death and dealing with property reassessment is not DIY territory. Get a lawyer involved.
How to Settle Debts, Taxes, and Final Expenses for a Trust
Unlike probate, California trust law does not require you to notify creditors. But you still must pay any legitimate debts owed by the deceased or the trust.
Also, you’ll need to:
- File the decedent’s final Form 1040 income tax return
- File Form 1041 if the trust earns over $600 in income after death
- Determine whether a federal estate tax return is required (depending on estate size)
- Look into state inheritance or death taxes if the decedent lived or owned property out of state
Keep meticulous records of all expenses and payments. Some expenses, like funeral costs or tax prep, can be shared by all Beneficiaries. Others may be allocated specifically.
And as discussed earlier, pecuniary gifts (specific cash gifts) must be paid within a year. If they’re not, they accrue interest—usually paid by the Trustee personally.
Final Accounting for Settling a Trust
Once debts are paid, taxes filed, and all tasks completed, you must prepare a final accounting that shows all income, expenses, and distributions. You’ll provide this to the Beneficiaries before officially closing out the trust.
Then—and only then—do you move on to Step 5: Distribution. Distribute the assets (but only at the end! We’re not there yet.)
You can distribute the trust assets only after paying debts, sending notices, filing taxes, and reconciling all accounts.
What Happens If You Distribute Assets from a Trust Too Early?
If you distribute assets from a Trust too early, there may not be enough left to cover the estate’s taxes and expenses.
Bob’s cautionary tale: Bob is Trustee for his brother’s trust. He distributes cash to Beneficiaries within the first few weeks to “make people happy.” Months later, a forgotten medical bill arrives, and there’s no money left in the account to pay it. Bob ends up writing a $75,000 check from his own funds to avoid legal trouble.
Important: If the estate is insolvent—meaning it has more debts than assets—this is urgent lawyer territory. You cannot just guess your way through an insolvent estate.
You must also keep meticulous records. Every dollar that comes in or goes out must be tracked.
Understanding California Prop 19: How Reassessment Works for California Property Taxes
In California, Proposition 19 has dramatically changed how property taxes are handled when real estate is passed from parent to child. And let me tell you—this is one of the most misunderstood (and costly) areas in trust administration.
Here’s the deal: when someone dies, and real estate is transferred, it’s considered a change in ownership. Under Prop 19, that change often triggers a reassessment of the property’s taxable value to its current market value. That can cause property taxes to skyrocket—especially if the home has been in the family for decades.
Let’s say Mom and Dad bought a house that’s been assessed at $200,000 for years, with annual property taxes around $2,600. But when they pass away, that same home is now worth $750,000. Once reassessed, the property taxes jump to roughly $8,300 per year. And here’s the kicker: the trustee might not get the bill for nearly 11 months after the change in ownership. That’s called a supplemental unsecured bill, and when it arrives, it can be a complete shock.
Worse still? If the trustee has already distributed the assets to the Beneficiaries and didn’t retain enough cash to cover the tax bill, the trustee may have to pay the shortfall personally. Unless you’ve got a refunding agreement in place (and most people don’t), you can’t claw that money back from the Beneficiaries.
And don’t expect a heads-up from the tax collector’s office—they’re notoriously slow. The bill shows up when it shows up. Meanwhile, the interest—and the risk—starts ticking.
Prop 19 does allow limited exceptions for Beneficiaries who occupy a house as a primary residence, but it is a complex topic. This is a highly specialized area of law, and it’s not something to guess your way through. If the property is being transferred and you want to avoid or mitigate reassessment under Prop 19, you need to talk to a qualified estate planning or trust administration lawyer right away. The rules are strict, and the financial and tax consequences are real. Set up a call with CunninghamLegal.
Some families are blindsided by this and spend months appealing the assessment. Meanwhile, the Trustee may be held personally liable for failing to disclose the tax consequences to the heirs.
Don’t be that Trustee.
5. Distribute the Trust Assets (But Only at the End!)
This is the step everyone wants to rush. Don’t. Distributing the assets from a trust is the very last thing you do as Trustee. Not the first. Not the second. Not the third. Not the fourth. Once money or property leaves the trust, there is no legal way to get it back.
Distribution happens only after all prior steps are completed. Debts paid. Taxes filed. Notices sent. Disputes resolved. Only then do you:
- Record new deeds for real property
- File Preliminary Change of Ownership reports
- Transfer financial accounts
- Issue distributions according to the trust terms
- Provide a final accounting to Beneficiaries
- Close out the trust and keep documentation
What if you disagree with how the trust splits the assets? Too bad. You must follow the terms as written. If it says Johnny gets $100,000, and Johnny is a gambling addict, he still gets his $100,000—unless the trust specifies otherwise (e.g., a spendthrift trust).
Got a complicated situation? Consult a lawyer who may be able to help you structure subtrusts for:
- Minors
- People with disabilities
- Spendthrift or financially irresponsible Beneficiaries
Done right, these subtrusts can protect the assets and preserve eligibility for government benefits. Set up a call with CunninghamLegal.
Let me repeat: Only after all debts are paid, notices sent, taxes filed, and all accounts reconciled can you distribute the trust assets.
Three Pro Tips for Trustees
- Gather at least 10 to 15 death certificates from the funeral home. You’ll need them for title transfers, banking, and more. If the deceased owned multiple properties, add one death certificate per parcel. So that’s ten plus an additional death certificate for each parcel.
- You will want professional appraisals for real estate, investment accounts, valuable collectibles, and business interests. Appraisals lock in a step-up in basis and can save Beneficiaries from crushing capital gains taxes down the road.
- IRAs, 401(k)s, and other retirement accounts are a minefield. Get professional advice. Real-life example: Juliet inherits her mom India’s $1 million IRA. Without consulting an advisor, Juliet cashes out the full IRA. She receives a 1099 and ends up paying close to $400,000 in federal and state taxes. Had she handled it properly, she could have deferred taxes for years and kept more money invested.
How Long Does Trust Administration Take?
Expect the Trust Administration process to take 6 to 18 months. A year is average. If it goes beyond two years, people will ask questions, and you’ll need a compelling explanation for the delay.
However, unavoidable delays can happen for many reasons:
- Waiting on appraisals
- Selling real estate
- Resolving disputes
- Gathering financial records
- Handling IRS issues
Beneficiaries grow impatient.—that’s natural. But rushing the actual process leads to mistakes, and mistakes can lead to lawsuits.
So give yourself grace, but also keep momentum. Which brings us to the question…
Do I Need a Lawyer to Dissolve a Trust?
Technically? No, you do not need a lawyer to dissolve a trust. But realistically? Yes—you should almost always use an experienced Trust and Estate Lawyer like those here at CunninghamLegal to dissolve a trust.
Unless the trust is small, simple, and crystal-clear, you’re almost certainly going to need help. Especially if you’re dealing with:
- Multiple Beneficiaries
- Conflicting amendments
- Real estate
- Retirement accounts
- CA Prop 19
- Family disputes
- Insolvent estates
And remember again: Trustees have 100% personal liability. You’re legally responsible for any screw-ups, even accidental ones. So hiring an experienced attorney isn’t a luxury—it’s a smart way to help protect yourself. You don’t want to learn expensive lessons when figuring out how to dissolve a trust.
At CunninghamLegal, we’ve cleaned up hundreds of trust administrations gone wrong. Sometimes the mess is small. Sometimes it’s catastrophic. Either way, it’s usually avoidable.
Please consider contacting us right away when you become the Trustee of an Estate in California. You can use the form on this page, call us at (866) 988-3956 or click here to book a free call with a client specialist.
How Do You Lessen Personal Liability as a Trustee?
In order to mitigate your personal liability as a Trustee, start by following the terms of the trust. Even if the instructions seem odd, outdated, or just plain unclear, you must follow them unless a court tells you otherwise.
One big mistake Trustees make is trying to “do what feels fair” instead of doing what the trust says. That’s how lawsuits happen. And remember, different rules apply when the Grantor is incapacitated versus when they’ve passed away. The trust document might address both, but the legal powers and responsibilities change depending on the situation.
Let’s be honest—trust language can feel arcane, cryptic, and totally counterintuitive. These documents are written by legal professionals, often in a style that feels like a foreign language to everyone else. That’s why I always say: this is not a DIY project.
A savvy estate attorney can guide you through the maze, help you understand the terms, and assist in gathering the correct documents and assets.
And speaking of documents—if you can’t find the originals, that’s a real problem. At CunninghamLegal, if you’re a client and you’ve lost your trust documents in a fire or flood, we’ll recreate a certified replacement for you. We believe peace of mind shouldn’t disappear with a pile of ash.
Need help? Call us at (866) 988-3956 or click here to book a free call with a client specialist.
When Is Probate Necessary?
Many people assume that creating a Living Trust automatically means their estate will avoid probate. But that’s not always the case. Probate in California may still be required if the trust wasn’t properly funded—or if certain assets were left out entirely.
Here’s when probate in California is necessary:
- There is no Living Trust, or the trust wasn’t fully funded
- The decedent had only a Will (Wills do not avoid probate in California)
- The decedent died intestate, meaning without a Will or a Trust
- The total value of assets in the decedent’s name alone (not in a trust or joint ownership) exceeds $208,850 in California (2025 threshold)
- The decedent left a residence worth $750,000 more (an expedited procedure is available for just the residence)
In these cases, probate court becomes the only legal mechanism to sell, transfer, or otherwise distribute the decedent’s property.
Not sure if you need to go to Probate Court? Need help with the Probate Process? Call us at (866) 988-3956 or click here to book a free call with a client specialist.
What If There’s a Dispute During Settlement of a Trust?
The Trust administration process, unfortunately, can bring out the worst in people. Old sibling rivalries. Disagreements over “what Mom would have wanted.” Suspicions that the Trustee is playing favorites.
Real case: Three siblings inherited a trust from their father. One sibling accused the Trustee (his brother) of hiding money. Tension escalated. CunninghamLegal brought in a neutral CPA to conduct a forensic audit. The trust was managed correctly, but the suspicion stemmed from poor communication. Once the audit was complete, we helped them mediate and move forward.
Pro Tip: Keep Beneficiaries informed throughout the process. Transparency helps prevent conflict.
Let Us Help
At CunninghamLegal, we guide people through some of the most important—and often most emotional—moments of their lives. Whether you’re creating an Estate Plan, navigating complex tax issues, managing a family business, or settling a loved one’s trust, we’re here to help.
Our team of attorneys and staff is dedicated to helping savvy, caring families protect their legacy and pass on wealth the smart way. With offices across California, we offer in-person, phone, and Zoom appointments to fit your schedule.
Many of our clients also tell us how valuable they find our free legal webinars. We cover a wide range of topics—from Living Trusts and Probate to retirement planning, tax strategies, California property rules, business law, asset protection, and more.
Please consider contacting us immediately when you become the Trustee of an Estate in California. You can use the form on this page, call us at (866) 988-3956 or click here to book a free call with a client specialist.
Let’s talk. We’d be honored to help you take the next step.
Warm regards,
Jim Cunningham, Jr., Esq.
Founder, CunninghamLegal
At CunninghamLegal, we guide savvy, caring families and business owners in the protection and transfer of multi-generational wealth.
Distributing trust assets too early is the #1 mistake Trustees make—and it can have enormous consequences in taxes, penalties, and family conflict.
