What needs to be done while you’re alive?
In order to properly establish your trust, the trust must hold at least one asset. After seeking the advice of counsel, you should transfer most, if not all, of your assets to your trust. In most cases, you should transfer your real estate interest(s) into your trust immediately. To the extent that you own assets that are held in title in your name as an individual (not held in the name of the trust), these assets can be administered subject to Probate.
Maintaining Property in trust (Acquisition and Refinance)
As the form of your assets change over time, you should confirm that the assets continue to be held in the name of your trust. If you refinance, some lenders will require that you temporarily remove the home from your trust. You should be certain that title to your home is transferred back to your trust at the conclusion of your refinance.
Accounts held in the name of your trust may be closed or transferred. Be certain to review whether each account is properly held in the name of your trust.
Regular Review of Title to Assets
Depending on the size and nature of your assets, a periodic review should be completed to determine how title is held to your assets. At minimum, this review should be completed annually. For larger estates or estates where assets are acquired or change forms often, a more frequent review of the title to your assets may be required.
What needs to be done when one spouse of a marital trust passes?
Upon the passing of the first spouse, often the remaining spouse will be the sole Trustee of the couple’s trust. For some assets, particularly real estate, held by the trust, title must be updated to reflect that there been a change from Co-Trustee to a sole Trustee.
Consider Tax Issues
Upon the passing of the first spouse, your attorney and certified public accountant (CPA) should discuss with you whether an estate tax return should be filed. If any estate tax is owed, such tax must be paid within nine (9) months of death. In addition, a final federal and state tax return often needs to be prepared for the deceased and a new federal and state tax return may be required to be filed by the trust.
Divide Assets Into Separate Trusts
If you have created an “AB” or “ABC” trust, then you likely need to separate your assets into separate subtrusts upon the passing of the first spouse. After reviewing your trust with an attorney and your certified public accountant (CPA), you will need to determine the most advantageous method to separate your assets to avoid taxation.
Contacting the Department of Health
In many instances, the Department of Health needs to be notified that the deceased has passed. This gives the Department of Health an opportunity to make a claim against the estate of the deceased. Even more importantly, if the Department of Health does not make such a claim during a specified period, then the Department of Health is unable to make a future claim.
Distribution, if any, Pursuant to Trust
According to the wishes expressed in the trust, distribution may be made from the trust. This may be in the form of distributing specific gifts to individuals or distributing income from the trust to beneficiaries over time.
What needs to be done when unmarried person or second spouse of a marital trust passes?
Successor Trustee Responsibilities:
When the Successor Trustee assumes the role of Trustee, the Successor Trustee takes on a “fiduciary” duty to the Trust. This fiduciary duty has very significant legal standards which must be met, including prudent management of the assets of the estate serving the best interests of the trust. It should be stressed that the Trustee must not act to favor any particular beneficiary(ies) to the detriment of other beneficiaries. The Successor Trustee should seek the advice of an attorney to assist in the administration of the trust.
A summary of responsibilities:
- Manage trust assets
- Manage trusts to be distributed over time
- Trusts for minor children are often managed by the Trustee and are only distributable for certain specified purposes (i.e., housing, health, education) until the beneficiary reaches age 18, 21, 30 or older.
- To the extent the trust requires distribution of assets upon the death of both spouses, the Trustee must distribute such assets appropriately.
- File trust tax return
The trust often provides for compensation to be paid to the Successor Trustee for the services rendered on behalf of the trust. The time invested by the Successor Trustee to gather documents for the CPA to prepare the trust tax return, actively manage the assets in the estate and communicate with beneficiaries regarding distribution can be significant. The Successor Trustee should keep detailed records of the time he or she spends managing the trust to determine whether compensation would be appropriate.
Need for Professional Services
The trust will often permit the Trustee to hire “agents” to assist with the administration of the trust. The trust may specifically state that the Trustee may hire an attorney, accountant, investment advisor or other professional to assist with the trust administration at the expense of the trust.
Pursuant to the California Probate Code, formal notice must be given to specific heirs and/or beneficiaries. You should seek the advice of an attorney to determine to whom notice must be given.
Consider Tax Issues
There are several tax issues that must be considered. As an initial matter, final federal and state tax returns likely need to be filed on behalf of the deceased spouse. In addition, the trust likely needs to file tax returns each year until the trust is fully distributed. Lastly, some estates should consider whether a federal estate tax return (Form 706) should or must be filed on behalf of the estate. As a reminder, any estate tax liability must be paid within nine (9) months of the date of death.
An accounting is a specific record of the assets, liabilities, income and distributions of the trust. The Successor Trustee may be required to make periodic accountings of the trust to the beneficiaries. If a dispute arises relating to the trust, the Successor Trustee will almost certainly be required to prepare an accounting. The Trustee must have clear and accurate records of the accounts to adhere to the Trustee’s legal fiduciary duty.
The Successor Trustee is required to make distributions according to the terms of the trust. This can be a very easy task – for instance if all of the property is being distributed to the only child of the deceased. Distribution can become considerably more complicated, however, if there are multiple beneficiaries, if assets are not easily divisible, and if the assets in the estate have changed significantly since the decedent prepared their estate plan. The Successor Trustee should seek the advice of an attorney to determine whether the contemplated plan for distribution is correct.