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 ﬁ le 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 in to 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”.
© 2018 by Marlene S. Cooper. All rights reserved.
(Marlene S. Cooper, a graduate of UCLA, has been an attorney for over 35 years. Her practice is focused entirely on estate planning, estate administration and probate. You may obtain further information at www.marlenecooperlaw. com, by e-mail at Marlene@ MarleneCooperLaw.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).