At Leisinger Law, we work with individuals and families who want to avoid the costly California probate process. Often, that means creating a revocable living trust and naming a trusted individual to serve as successor trustee, easing the transfer of assets and property to loved ones. But what does a successor trustee need to know before taking on this responsibility? And what support is available to him or her throughout the trust administration process? Let’s take a look.

Serving as Successor Trustee for a Revocable Living Trust

If an individual creates a revocable living trust, he or she is essentially creating a separate entity that takes ownership of assets and property. The grantor (the person creating the trust) names him or herself as the primary trustee and retains control of all trust assets. However, upon the grantor’s incapacity or death, control of trust assets passes to the successor trustee. This person can be a trusted friend or family member, an attorney, or a financial institution. It is then this person’s responsibility to oversee the trust assets and ensure they are distributed in accordance with the grantor’s trust instructions.

Trustee Responsibilities and the Trust Administration Process

Trust administration begins as soon as responsibility passes from the primary trustee to the successor. At this time, the previous revocable trust becomes irrevocable, meaning the terms of the trust can no longer be altered. Usually, this happens when the grantor passes. At this time, California law, as well as the trust instructions, dictate the trust administration process:

  1. Giving Appropriate Notice

In the State of California, successor trustees are required to give notice to beneficiaries and heirs when trust administration is initiated. Beneficiaries and others then have 120 days to file a trust contest if they do not agree with the terms of the trust. To give notice, trustees can write to known beneficiaries and heirs directly, as well as post notice in local newspapers. Beyond legal notice requirements, the trustee will also need to notify the grantor’s financial institutions, bank, and employer of the grantor’s death. Often, this will require providing the grantor’s death certificate and information about the trust.

2. Paying Final Expenses

When the grantor passes, the trust will likely need to pay for final expenses, including the funeral and any outstanding medical bills. If the trust hires an attorney or CPA to aid in trust administration, the trust will also cover these costs.

3. Setting Up the Trust

To begin paying expenses out of trust assets, the trust administrator will first need to obtain a tax identification number (TIN) for the trust. Then, using that TIN, he or she can open a separate bank account in the name of the trust. This will allow all expenses and expenditures to be tracked and easily reported. In California, the trustee is responsible for maintaining a detailed accounting of how trust assets are spent.

If the assets will be held in the trust for some time before being distributed to beneficiaries, the trustee may wish to invest the assets and allow them to grow. As the trustee, this individual is responsible for managing the trust assets in whatever way he or she feels is most prudent and in the best interest of the beneficiaries.

4. Gathering and Protecting Trust Assets

At the start of trust administration, the trustee should inventory all trust assets (including real estate, bank and investment accounts, and any other assets). Real estate should be retitled into the name of the new trustee by recording an Affidavit of Death of Trustee along with a copy of the death certificate in the land records for each individual property. For tax purposes, all real estate should be appraised for value as of the date of the grantor’s death. This should also be done for any business interests the grantor may have held.

5. Overseeing Transfer of Nontrust Assets

If the grantor had a pour over will in addition to his or her trust, the trustee should also deposit that will with the County Clerk of Court. If there are any assets left out of the trust, the trustee will assist in determining whether formal probate proceedings need to begin to transfer nontrust assets. Any life insurance policies, retirement accounts, or investment accounts owned by the grantor should be reviewed. Often, these kinds of assets are transferred in accordance with a beneficiary designation, rather than the probate process. If the trust is named as the beneficiary on such forms, these assets will simply be consolidated into the trust assets. If the beneficiary form names another individual, however, the assets will pass directly to that person. The trustee does not necessarily need to be involved in that process, other than to ensure the proper beneficiary receives the assets.

6. Resolving Outstanding Debts and Liabilities
One of the responsibilities of a trustee is to file the final income tax return for the grantor, as well as any required death tax return. If estate taxes are due, the trustee will be responsible for paying them out of the trust assets. The trustee should also settle all of the grantor’s debts and liabilities, where applicable, including credit cards, debts, medical bills, and outstanding taxes. The trust itself will also be required to file annual income taxes for the life of the trust.

7. Distributing Trust Assets in Accordance with Instructions

After all of the above are complete, the trustee will then distribute the trust assets to the beneficiaries in accordance with the trust instructions. In some cases, this will empty the trust of assets and allow it to close. However, some trusts may provide that assets be held for a certain period of time or be distributed to beneficiaries over time. In either of these cases, the trustee will remain responsible for trust administration until either the trust is closed or the trustee steps down from his or her obligations.

Trustee Compensation is Available

In the State of California, it is permitted for a trustee to be compensated for his or her time. Because this is a sensitive issue with the potential for conflict, it is best to consult a California trusts attorney to determine how much a trustee is entitled to pay him or herself out of the trust assets. In general, trustees are paid between 1 and 1.5% of the trust’s value; however, this can be altered in the trust documents.

Can I Get Assistance Administering a Trust?

Absolutely! At Leisinger Law, we highly recommend engaging an attorney throughout the trust administration process. An attorney can ensure that the trust is administered properly and can take some of the responsibilities away from a busy trustee. If you would like to learn more about trust administration in Southern California, feel free to give us a call at 626-331-1515. We would love to help!