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. This article addresses the second phase in the overall responsibilities of the successor trustee, that of gathering the assets and settling any of the deceased person’s debts.
The successor trustee has a duty to inventory the decedent’s assets and take reasonable actions to pursue money that may be owned by, or owed to, the trust. Cash in financial institutions (checking and savings accounts, CDs, money markets, etc.) and lump sum payments for life insurance policies, retirement plans and annuities should be collected from the various institutions and aggregated into a trust account. The trust account must be opened under a new tax identification number obtained from the IRS because once a person is deceased his or her social security number can no longer be used. The successor trustee cannot use his or her own social security number or put the money into his or her own bank account either because that would be a violation of a cardinal rule: the successor trustee must keep trust property separate from his or her own property.
If there is real property in the estate, the successor trustee has the duty to take control of the property, make it productive and take action to prevent any loss or damage. This means that the property must be physically secured, insured and maintained in good condition. Any mortgage and property taxes due must be paid – the death of the property owner does not eliminate these obligations. If the property is occupied by anyone (including a family member) who either will not or cannot pay rent, the successor trustee may have to evict the occupant unless all of the trust beneficiaries agree to allow the occupant to continue to reside in the property rent-free. If the successor trustee is the occupant, he or she is held to the same standard as any other occupant. The successor trustee has a duty to avoid transactions with the trust that will benefit him or her personally and living in trust property rent-free could certainly be viewed as a conflict of interest. Of course, the trust may contain provisions that override the general rules regarding the occupancy of the trust property.
In general, the decedent’s estate is liable for all of the legitimate debts of the deceased person and they should be paid if there are adequate funds to do so. If the successor trustee has advanced money on behalf of the deceased person’s estate for expenses such as funeral expenses, property maintenance and administrative fees, the successor trustee may reimburse himself or herself if the estate has sufficient assets. In most cases, creditors should be paid before the beneficiaries receive any inheritance because the law provides that in many instances the creditor can pursue the beneficiary (or in some cases, the successor trustee) for payment of the debt where assets have been distributed before the creditor gets paid. Payment of creditor claims might result in real property being sold in order to satisfy the claims. If the estate is of insufficient value to pay all of the creditors, the successor trustee is not personally liable for the debts.
After all of the trust property has been accounted for and debts have been satisfied, the successor trustee can begin the process of concluding the trust administration. In the last installment in this series we will discuss the final steps to be taken.
© 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).