Seven Trust Administration Steps Necessary to Protect the Successor Trustee

If you have been appointed as the successor trustee or agreed to take on the position for a family member or a friend, you are probably wondering what are the immediate responsibilities of such a fiduciary and what needs to be done if the grantor passes away.

After the grantor passes away, the successor trustee must take action to administer the trust, distribute the trust assets, and close the trust estate. In addition, the successor trustee needs to meet certain legal requirements to avoid personal liability.

FIRST, California law requires the successor trustee to provide a written notice to the beneficiaries of the trust and the heirs of the decedent. This notice must be provided within 60 days from the date of death. The notice informs the beneficiaries of the successor trustee’s existence, the contact information for the successor trustee, the time limit to challenge the trust, and tells them on how to obtain a copy of the living trust.

Note that if as a successor trustee you fail to serve the notification, you would be responsible for all damages, attorney’s fees, and other costs caused by such failure.

SECOND, the successor trustee must obtain a Federal Tax Identification Number from the Internal Revenue Service. After the death of the grantor, the estate of the decedent becomes a separate taxable entity. State and federal tax returns must be filed until all assets of the estate are distributed. If the successor trustee distributes the assets before all taxes are paid, the successor trustee may be personally liable for the decedent’s taxes due.

The Federal Tax Identification Number can be obtained online on the IRS website, by mail or fax of the Form SS-4, or by calling the Internal Revenue Service directly. The successor trustee may also need to provide proof of the fiduciary relationship and a copy of the grantor’s death certificate.

The THIRD necessary step is to file the change of ownership statement with the office of the County Assessor. This helps to protect the successor trustee from personal liability for the potential increases in property tax.

FOURTH, the successor trustee needs to file a claim for reassessment exclusion for transfer between parent and child. This step is not always necessary and only applies to the property transfers between parents and children and/or grandparents and grandchildren.

However, filing of the claim for reassessment is mandatory to obtain the real estate base adjustment for property taxes (market value at the time of death) and to obtain a transfer tax exclusion. California excludes the first one million plus the principal residence of the parents in the parent—child transfers. If the claim for reassessment exclusion for transfer between parent and child is not filed within three years after the date of the transfer, the exclusion can no longer be claimed. The best practice is to file the claim as soon as the trustee knows that the property will be transferred to the children or grandchildren of the decedent.

FIFTH, the successor trustee must take control of the real property by filing an affidavit of death of trustee in the county where the real estate property is located. This document provides the successor trustee the authority to sell or transfer the decedent’s real estate.

SIXTH, the successor trustee has an ongoing duty to keep trust accounting and provide financial reports to the beneficiaries of the trust. An accounting is needed form the date of death to the final distribution of the trust assets. It must include the receipts and disbursements of principal and income, a statement of assets and liabilities of the trust, information regarding the compensation of the trustee and any agents hired by the trustee, and other information required by the Probate Code.

SEVENTH and final step is to administer the trust timely and efficiently and maintain ongoing communication with the trust beneficiaries. Otherwise, the beneficiaries may sue the trustee for neglecting his or her duties.

San Diego Tax Law Group provides an  Initial Trust Administration Service Package, which includes the following:

  • Attorney review of the living trust;
  • Notice to the beneficiaries of the trust as required by the California Probate Code;
  • Preparation and filing of the “Change in Ownership Statement, Death of Real Property Owner”;
  • Obtaining of the Federal Tax Identification Number for the trust;
  • Preparation of the Affidavit of Death of Trustee for one house or real property;
  • Detailed instruction manual on trust accounting.

Cost $945

 Additional Services:

  • Preparation and filing of the “Claim for Reassessment Exclusion for Transfers between Parent and Child;
  • Trust transfer deeds for transferring the real estate property into the names of the beneficiaries and the Preliminary Change of Ownership Reports;
  • Trust Accounting Services;
  • Trust tax return preparation;
  • Advice and Guidance to the Trustee as necessary.

Cost TBD based on the need and complexity of the matter. Contact San Diego Tax Law Group at 619-630-4765 for pricing.

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