Trustee 101: Being a Trustee of a Trust

Being a trustee of a trust can be a thankless job. Many people who are named as a Successor Trustee upon the death or disability of a Trustor want guidance on how to proceed with the trust administration. This article serves to assist in explaining the role and duties of the trustee.

What is a trustee? If one has a revocable living trust, generally the trustor (the creator of the trust) names himself or herself as trustee of the trust. Who is better fit to manage one’s own assets than himself or herself? However, the trustor has to decide who is best to name as Successor Trustee after he or she passes away or becomes incapacitated.

Before learning about being a trustee of a trust, the first decision is naming a Successor Trustee in the trust. How does the trustor name a person to administer the trust after he or she dies or becomes incapacitated? Some people think the best option is to name one’s oldest child for the sole reason that he or she is the oldest child. This may not be the best option.

There are many factors to consider in naming a trustee: First, the name says it all: trustee – Does the trustor trust the individual?

Second, is the individual financially responsible? Can he or she manage finances and work with financial institutions? Does the individual pay debts on time?

Third, is the individual organized? Can he or she keep good records?

Fourth, is the individual honest, reliable and impartial? Will the individual be able to respects others and command their respect? Will the individual be able to handle potential disputes and be fair to all beneficiaries?

Finally, does the individual live close to the trustor? Will he or she physically be able to deal with dividing, distributing or selling the personal items, cleaning out, listing and selling the home?

These are just some of the questions that one should ask when determining who is best to serve as a Successor Trustee.

Many people ask about naming Co-Trustees who will act together to administer the trust estate. Co-Trustees can be a great idea if both individuals get along and are able to work together to administer the trust estate. Naming two (2) or more individuals to act may allow each individual to perform certain tasks to more quickly administer the trust, and allow for a check and balance system between the trustees. In a blended family, having representatives from both branches of the family can improve access to information and minimize distrust and suspicion. However, in deciding whether to name Co-Trustees, one must be aware that if the Co-Trustees disagree or do not get along, there may be more problems with the administration.

Whether it be a friend, relative, child or Co-Trustees, there are many things to consider in making the decision of who should serve as a Successor Trustee.

After a trustor passes away, the Successor Trustee will administer the trust estate and distribute the assets pursuant to the terms of the trust. Provided that the assets are titled in a living trust and properly funded into the trust, no court supervision is generally required. However, there are legal requirements that must be satisfied after the trustor passes away. By no means is this an exhaustive list of the requirements after one passes, but this is a basic outline for a Successor Trustee.

All beneficiaries and heirs of the trustor are entitled to notice. Pursuant to California Probate Code Section 16061.7, the trustee must provide a statutorily prescribed notice to the beneficiaries and heirs that the trust has become irrevocable, and all beneficiaries and heirs are entitled to a copy of the trust and all amendments.

Upon receipt of the notification, all beneficiaries and heirs have 120 days to contest the terms of the trust. The Successor Trustee cannot administer the trust until all beneficiaries have waived the period to contest or the 120 day period has elapsed.

Upon the death of the trustor, the decedent’s Social Security Number is no longer used. An Employer Identification Number (EIN) must be obtained from the IRS for tax reporting purposes. The California Probate Code requires the Successor Trustee to lodge the original Will and Codicils of the decedent with the Superior Court of the county in which the decedent was a resident.

The California Probate Code also requires the Successor Trustee to notify the Department of Health Care Services of the decedent’s death, so that the state can seek reimbursement for any Medi-Cal expenses advanced for the decedent’s medical or long term care expenses. This applies even if the Successor Trustee does not believe the decedent was on Medi-Cal.

If the decedent owns real property, the decedent’s name must be removed from title to the property. An Affidavit of Successor Trustee must be filed at the County Recorder’s office. This will allow the Successor Trustee to manage, sell or distribute the property.

In some cases, a federal estate tax return is required or recommended. The federal estate tax exemption for decedents dying in 2014 is $5.34 million per person and any estate over that amount will owe federal estate taxes of 40% on any amount over $5.34 million. For estates below this amount, filing a federal estate tax return is not required but may be recommended if there is a surviving spouse. Please refer to our article regarding portability for more information on this topic.

In addition to the legal requirements, the Successor Trustee must also notify all financial institutions of the Trustor’s death, gather all assets, sell the personal property, sell the real property, pay all debts of the estate, file any tax returns and pay any taxes and trust administration fees from the trust estate. Once the above legal requirements are complete, the Successor Trustee is required to prepare an accounting of the trust and finally distribute the assets of the trust estate in accordance with the terms of the trust.

A Successor Trustee acts in a fiduciary capacity and must act in the best interest of the beneficiaries. As such, the Successor Trustee must always keep the beneficiaries reasonably informed about the expenses, income, distributions, etc. from the trust and avoid taking any action that would create the appearance of exercising discretion in favor of himself or herself. This situation presents itself when the Successor Trustee is a beneficiary as well as the Trustee (which is often times the case).

This outline summarizes some of the Successor Trustee’s duties. Many other issues may arise during trust administration, such as issues with beneficiaries, financial institutions, and in some cases trust litigation. Hopefully the Successor Trustee is chosen based on rational factors so that any potential future issues are minimized.

Our office can assist the Successor Trustee with all of the above-referenced tasks, and provide legal guidance throughout the administration process.

Should you have any questions regarding this article, please contact Associate Attorney, Emily A. Foehr at eaf@drobnylaw.com. If you would like additional information about trust administration, Ms. Foehr teaches a class with the Learning Exchange that further details trust administration, the legal requirements and how to act as a Trustee of a Trust. If you would like more information about this class, please contact this office.

4180 Truxel Road, Suite 100 Sacramento, CA 95834 • Tel. 916-419-2100 • FAX 916-419-1222

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