Serving as a Trustee - Part One: Initial Trustee Duties
Stepping in to serve as Trustee (the person in charge of administering and managing a trust) can be one of the most important things you do for a loved one or friend (the Trustor or creator of the trust). Complying with the many rules and obligationscan also be time consuming and confusing. As you read this information, remember that a host of professionals, including your attorney and accountant as well as tax return preparers, financial planners, real estate brokers, and property managers, can help you with this grand and rewarding responsibility. The following primarily discusses serving as Trustee after the death of a Trustor, but also applies to Trustees who step in while the Trustor is still living.
THE FIRST YEAR
The first year after the death of a Trustor is the busiest for the Trustee. During the first year, the Trustee must collect information regarding the Trustor, his or her assets, debts, and beneficiaries, file tax returns with federal, state, and county taxing authorities, and make payments to creditors and distributions to beneficiaries.
The very first thing the Trustee should do is get copies of the Trustor’s estate planning documents and READ them carefully. More specifically, you should become familiar with the provisions in the Trust(s) and any amendments thereto, the Will and any codicils (amendments) thereto, and, if the Trustor is still living, any Powers of Attorney. These documents will help you identify the following: (1) the scope of your duties and powers as Trustee; (2) the identity of the beneficiaries; (3) the nature and value of assets of the Trustor’s estate; and (4) the identity of any other co-trustees, executors, or fiduciaries. You should also obtain certified copies of the death certificate; typically five to ten copies are sufficient.
Second, you should notify certain agencies of the death of the Trustor. Typically, this would include social security and the agencies administering the decedent’s pension(s). If the decedent (or his predeceased spouse) ever received Medi-Cal benefits, that agency must be notified. If any heirs or beneficiaries are in prison, you must notify the state Victims Compensation and Government Claims Board. You should also notify certain entities that you are now acting as Trustee for the decedent. You should send IRS Form 56 to both the IRS and the California Franchise Tax Board (FTB) to let them know you are responsible for the various returns and taxes that will be due. By alerting these agencies, you also ensure that you will receive the correspondence and information necessary to do your job as Trustee, possibly including information about outstanding taxes and/or liens. Finally, you should record an affidavit regarding the change of Trustee with the County Recorder in each county in which the Trustor owned real property.
Third, California law requires a Trustee to notify the trust beneficiaries and the decedent’s heirs at law (generally, the spouse, children and grandchildren) following the death of the Trustor. This notification must be made in a specific format within 60 days of the Trustor’s death, so you should locate contact information for all of the beneficiaries and heirs as soon as possible. A failure to comply with the notification requirement could make you liable for any resulting damages.
Fourth, you will need to gather information. Other useful information to obtain includes the Trustor’s social security number; the taxpayer identification numbers for related partnerships, trusts, etc.; information about the Trustor’s marriages (there may be outstanding obligations from a marital settlement agreement); the citizenship of the Trustor and his surviving spouse; and the rights of his surviving spouse in employee benefits.
Finally, for purposes of determining the value of the gross estate, and whether an estate tax return (IRS Form 706) will be required, you will also need to determine if the Trustor made gifts during life, when he made them, and to whom they were made. This will help determine how much estate tax and/or generation skipping tax, if any, is due and payable.
A Trustee’s initial steps require him or her to gather information, give notice, and take possession of the assets.
The above information may be helpful when serving as a Trustee. It is designed merely to serve as a guide to those dealing with the administration of a Trust and is not intended to be all-inclusive or to provide legal advice of any sort.