CA Trust Admin Procedures

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California Trust California Trust AdministrationAdministration

Monica Goel, Esq.Monica Goel, Esq.Tredway, Lumsdaine & DoyleTredway, Lumsdaine & Doyle

8141 E. 28141 E. 2ndnd St. Downey, CA 90241 St. Downey, CA 90241Downey, CA 90241Downey, CA 90241

(562) 923-0971; [email protected](562) 923-0971; [email protected]

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Initial Contact

Remind the client of the important documents to bring to the initial meeting

The initial meeting should take place as soon as possible in order to meet certain Notification requirements.

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Administration is a 3 Stage Process

1. Notification and Marshalling Assets

2. Inventory & Appraisal

3. Allocation or Distribution

Let’s talk about how we implement these 3 stages……

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Checklists

Have a complete and thorough client meeting checklist for Trust Administration

You may spend most of the first meeting consoling and reassuring the survivor.

This Checklist is designed mostly for internal purposes.

It can be expanded upon for client intake information.

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Applications For ID Numbers

Complete the IRS Form SS-4 This form is required to be executed by the

successor trustee prior to obtaining a taxpayer identification number for any subtrust(s) which are required to be funded.

The successor Trustee will appoint the attorney as the “Third Party Designee” in order to obtain the new identification number over the IRS website.

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Trust Review

During or after the initial meeting, it is necessary to review the Trust.

Review for provisions relating to funding formulas, powers of appointment, distributions upon first death, etc.

Based on the value of the Trust estate, the surviving spouse should be made aware of the benefits of executing a disclaimer.

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Trustee’s Duties

After the initial client meeting, the successor Trustee should be reminded of their duties and responsibilities.

Include any reminders necessary regarding additional documents or information needed

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Notification of Trustee Under Probate Code §16061.7 The Trustee is required to give Notice to all

beneficiaries under the Trust and all heirs of the decedent.

This Notice is required to be sent within 60 days of the decedent’s death.

Upon the first death, the successor Trustee is only required to provide the irrevocable terms of the Trust.

Some attorneys send the terms of the Trust with the Notice, although not required.

If any possible litigation is anticipated, the Notification should be sent via certified mail.

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Inventory of Assets During the initial client meeting, you should have been provided with

most of the date of death statements requested in your initial confirmation letter. However, it is unlikely that any appraisals have been completed.

If an estate tax return is anticipated to be filed, a certified appraisal should be obtained based on the market value of any real property as of the date of death.

Any stock holdings are valued based on the average of the high and low stock price on the date of death.

The Trustee may also need to obtain the value of specific items of personal property of the decedent, such as coins, stamps, jewelry, vehicles, farm equipment, art and antiques.

In determining the title of the various assets, you will want to determine if any small estate affidavits need to be prepared under Probate Code Section 13100.

If a probate needs to be commenced or a petition under Hegstaad could remedy any assets not held properly in the name of the Trust.

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Real Property Documents

Affidavits Re: Death of a Trustee or Co-Trustee must be recorded to allow new Successor Trustee to take title to property

Declarations must be recorded in the County where the decedent owned property. The County Assessor requires a Preliminary Change in Ownership Report to prevent reassessment upon change in Trustee.

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Trust Certifications

Trust Certifications and instructions need to be provided to any financial institutions managing accounts in the name of the Trust

Since the surviving spouse is most likely named as a Co-Trustee on the accounts, the re-registration should simply involve removing the deceased spouse’s name and changing the taxpayer identification number.

Not all financial institutions have the same policies and the successor trustee may be required to complete new account applications and establish new accounts.

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Estate Tax Return An estate tax return is required to be filed when the gross amount of

decedent’s estate exceeds the federal exemption amount. The current exemption amount is $3,500,000 and is based on all

assets, whether in the Trust or not. The value is one-half of the couple's community property and all of the

deceased's separate property, if any. If any prior gifts were made, obtain prior gift tax returns from the

surviving spouse to calculate the available exemption of the decedent. Many attorneys do not prepare the Federal Estate Tax Return and

leave the preparation to a certified public accountant who has experience in their preparation.

If the attorney does not prepare the Form 706, it is essential to work closely with the CPA in order to make sure the Asset Allocation is correctly reflected on the Form 706.

A federal estate tax return must be filed within nine months of the date of death. An extension can be obtained for up to six months to file the return.

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Accounting

Beneficiaries of an irrevocable Trust are entitled to an accounting of the Trust assets at least annually

This accounting can be waived in writing and is not required if the sole trust beneficiary and the trustee are the same person.

Other people who have a future interest in the trust, even though the interest is remote, may demand and receive an accounting each year.

Trust beneficiaries also have the right to request certain information such as assets on hand, sales, purchases, etc., from the trustee.

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Upon the death of the second spouse

Represent Trustees in order to make final distribution to ultimate beneficiaries

The first steps in the administration upon the second death are identical. Accordingly, the steps described in the first previously should be repeated:

Initial Contact Checklists Applications For ID Number if necessary Trustee’s Duties Marshall and Inventory Assets Accounting and Distribution

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Conflict of Interest

In representing Co-Trustees who are also beneficiaries, it is essential to have an executed Conflict of Interest Waiver

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Notification of Trustee Under Probate Code §16061.7 The Notification upon the second death

needs to state that the individuals (or charities) are entitled to copies of the entire trust and any amendments.

Upon the death of the second spouse, all terms and provisions of the Trust become irrevocable.

Notifications on the second death should always be sent via certified mail, although there is no legal requirement for the same.

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Inventory of Assets

The successor trustee(s) should be advised to gather all of the decedent’s mail.

Provide the post office with a certified death certificate and copies of the trustee provisions of the Trust. In this regard, a Trust Certification should suffice.

The mail is essential to gathering as much information as possible regarding the assets of the decedent, especially if the decedent did not keep organized files.

Request the successor trustee to bring as much information as possible to the initial meeting. The determination of their relevance can be determined by the attorney.

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Real Property Documents Affidavits Re: Death of Trustee must again be recorded in the County

where the decedent owned property Claim for Reassessment Exlcusions for Transfers Between Parents and

Children must be submitted separately to each County where the decedent owned property passing to children as beneficiaries

These forms should be sent via certified mail and request the assessor confirm and return a copy of the same as proof of receipt

Failure to timely submit these forms can result in reassessment of real property and a substantial increase in annual property taxes. California Proposition 58 permits exclusion from reassessment of real

property passing to children limited to the principle residence of the parent and or the first $1,000,000 of other real property.

A similar exemption is available for transfers between grandparents and grandchildren only when the parent of the grandchild has predeceased the grandparent and the deceased parent was not married at the time of death.

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Trust Certifications

Trust Certifications and instructions need to be provided to any financial institutions managing accounts in the name of the Trust in order to allow the new Trustee to marshal accounts

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Estate Tax Return

An estate tax return is required to be filed and taxes paid within 9 months of the date of the death when the gross amount of decedent’s estate exceeds the federal exemption amount.

The tax must be paid within nine months of the date of death in order to avoid any interest accruing on the unpaid balance.

An extension can be obtained to pay and file, but this does not eliminate the tax being due on or before the nine month deadline.

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Distribution Agreement

Strongly advise Trustees to prepare and circulate a Distribution Agreement Sets forth distribution provisions Often contains waiver of formal accounting Sets forth the value of Trust assets and

distributions to individual beneficiaries Contains release of liability for Trustee Provides for final trust termination

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Common Ethical Challenges in the Trust Administration Practice Can you avoid allocation on death of first spouse when trust

requires mandatory sub-trust split? Answer: Yes. Probate Code Section 15404 allows for

modification or termination by settlor and all beneficiaries. Pitfalls

Split families Contingent Beneficiaries Minor contingent beneficiaries – can they give consent or do

they need guardian ad litem to give such consent?

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Common Ethical Mistakes that Can Lead to Malpractice Actions that will trigger property tax reassessment

Client wants to share his inheritance with spouse. Transfer to client alone first and then do a second transfer to include spouse to avoid reassessment

Transfer to grandchild while parent still living will trigger reassessment

Siblings buying each other out their distributive share after distribution from trust

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Additional Ethical Challenges that Often Arise……. Representing Co-Trustees

Do you have conflict language in your Retainer Agreement?

What do you do when conflict arises? Self-Dealing by Trustee

Living in trust property rent-free Trustee who is also a beneficiary When filing a petition and if in doubt or even when

you’re not in doubt – always file a safe harbor petition Removes leverage in settlement discussions of making

a meritless claim that you violated the no clause