In Part 1 of this series we discussed the initial duties of the successor trustee (manager) of a trust when the person who created the trust passes away. In summary, the successor trustee is to lodge the will, if any, with the court, send a formal notice of the trust administration to the trust beneficiaries and deceased person’s next of kin, and file appropriate documents with the County Recorder’s office if real property is involved. In Part 2 we discussed the next step of gathering trust assets and paying off all of the legitimate debts of the decedent. This installment focuses on the issues involved in winding up trust affairs and making distribution to the heirs named in the trust.
Before assets can be distributed to beneficiaries, the successor trustee must make sure any federal and/or state taxes due have been paid and appropriate releases have been received from taxing authorities. The successor trustee should also prepare an accounting which details all of the financial transactions affecting the decedent’s assets. The accounting will show (1) what was in the estate on the date of the decedent’s death; (2) what came into the estate (eg. utility refunds, life insurance payments, rent receipts, bank interest), (3) all expenditures made from trust funds, and (4) what is left to be distributed. The accounting should be promptly given to all of the beneficiaries to trigger the three-year statute of limitations for challenging the financial transactions of the successor trustee. When a trust is administered over a long period of time, periodic accountings will likely be required.
After all of the preceding steps have been taken, the successor trustee is in position to distribute the trust assets to the beneficiaries as set forth in the trust. The method of distribution usually dictates that specific items be given to particular beneficiaries and that remaining assets be given to beneficiaries equally or based on a percentage of the total balance. When the distribution is made, the successor trustee should have each of the beneficiaries sign a receipt. I usually suggest that any monetary payments be made from the trust account (as opposed to a cashier’s check or money order) so that a copy of the canceled check can be used as a receipt if necessary.
Some trusts provide that the distribution be made over time or upon the occurrence of certain conditions. Examples of common provisions that require continuation of the trust are provisions for the care of minors until adulthood and provisions which dictate that real property will continue to be held and managed for the benefit of the beneficiaries. Although a trust can continue for many years, California does not permit a trust to continue indefinitely. There exists a complicated formula for determining how long a trust can continue under California law.
This series regarding trust administration is based on generalities. Of course, there are many variations and/or specific provisions that could change the application of the general rules. For that reason, it is a good idea for the successor trustee to work with an estate planning attorney to make sure the trust is clearly understood and that the successor trustee fully understands his or her duties. An estate planning attorney can also help the successor trustee avoid personal liability issues.
There is no substitute for proper trust administration by a competent successor trustee. I once heard someone say “there’s no success without a successor”.
© 2022 by Marlene S. Cooper. All rights reserved.
(You may obtain further information at the website www.marlenecooperlaw.com, by email at MarleneCooperLaw@gmail.com, by phone at (626) 791-7530 or toll free at (866) 702-7600. The information in this article is of a general nature and not intended as legal advice. Seek the advice of an attorney before acting or relying upon any information in this article).