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Elderlaw: 12/15/2013

Trustees' duties

Dear Len & Rosie,

My mother-in-law passed away last week. She has a trust, with her six children named in it. Her oldest daughter is the trustee. What are her immediate duties and responsibilities now that her mother has passed? Should she reassess the family home? File taxes? Close the bank accounts? Notify each of the beneficiaries?


Dear Ron,

Welcome to Trust Administration. Many people suffer from what we call the Living Trust Myth, which comes down to believing that once someone creates a trust, thatís all there is to it. Somehow, everything is supposed to magically be distributed to the beneficiaries. Not true.

We are the first to admit that it is possible to cut corners. If the trustee and all of the beneficiaries get along well enough, then trust administration can become an exercise of shoveling everything into the names of the children, as soon as the bills and taxes are paid. But even then, thereís a lot a trustee must do.

The first step is for the trustee to notify the trust beneficiaries and legal heirs of the trust settlor (the trust creator) of the existence of the trust with a notice under California Probate Code section 16061.7. Even disinherited children are entitled to this notice. Receiving this notice triggers a 120-day countdown on their right to contest the validity of the trust. This time period is why many trustees wonít distribute anything until a few months after the date of death Ė the trustee doesnít want to have to ask for anything back if the trust was declared invalid by court order.

The second step is for the trustee to get everything retitled into his or her name as trustee of the trust. This can be simple, but really depends on how each and every asset owned by the settlors is titled. Assets outside of the trust may have to go through probate. Assets held in joint tenancy and with pay-on-death beneficiaries pass outside of the trust and are usually collected by the beneficiaries directly.

After everything is in the name of the trustee, under a taxpayer identification number assigned by the IRS, the trustee may then pay off the bills, sell the properties that have to be sold, and pay the taxes. The settlor may require final income tax returns, depending on how much income he or she earned in the last calendar year of his or her life. The trust itself will likely need its own income tax return, and a federal estate tax return will be due if the settlor owned more than $5,250,000 (for 2013) gross, before subtracting the debts he or she owed.

After the debts are paid and the assets that had to be liquidated have been, then the trustee may distribute almost everything to the beneficiaries, together with a trust accounting showing what happened to every last dime. The trustee should retain a reserve to cover the administrative costs and the income taxes due next year, but shouldnít keep anything beyond that, unless the trust says so.

Many trustees suffer from the opinion that they can do all of this themselves, and while itís true that itís possible in some cases, itís not such a good idea unless the trustee is experienced and the beneficiaries are cooperative. Your sister-in-law should retain an attorney, at trust expense, to assist her with Trust Administration, especially if her brother-in-law is already asking questions.

Len & Rosie

Len Tillem and Rosie McNichol are elder law attorneys. Contact them at 846 Broadway, Sonoma, CA 95476, by phone at (707) 996-4505, or on the Internet at Len also answers legal questions each weekday, Noon-1 p.m. and Sundays, 4-7 p.m. on KGO Radio 810 AM.

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