Serving as a Trustee - Part Two: Dealing with Assets and Expenses

Trustees are responsible for managing trust assets, and paying trust (and possibly Trustor) liabilities. This article discusses these responsibilities.


Compiling a complete list of all of the decedent’s assets and their values is important for a number of reasons including determining whether an estate tax return will be required, determining the new income tax basis of assets and, ultimately, for distribution among the beneficiaries. It is also important to collect information regarding any taxable lifetime gifts made by the Trustor, as well as debts and creditors.

For federal estate tax purposes, you will need to compile information regarding all assets of the decedent, even including assets not held in the trust. Assets held outside the trust may include assets titled in joint tenancy, pay on death accounts, life insurance, pensions and annuities. Other types of assets to consider include: real estate, insurance policies, retirement plans, mutual funds, stocks, bonds, bank accounts, cash, interests in closely-held businesses and partnerships, patents, copyrights, leases, automobiles, boats, jewelry, art, etc. All of these assets are typically part of the overall taxable estate that is included on the estate tax return.


After identifying the assets owned by the Trustor, you should determine how these assets are held. Assets can be held as community property, separate property, in joint tenancy or some other form. Assets may be held in the name of the trust or in another manner. If the Trustor owned assets outside of the trust with a total value in excess of $100,000, then a probate administration is usually required to transfer those assets. If the value of the assets owned by Trustor outside of the trust is less than $100,000, California allows these assets to be transferred by affidavit, without probate. Additionally, if real property is owned outside the trust and located in a state other than California, you should investigate the laws of that state to determine whether an ancillary probate will be needed in that other state with respect to that property. An estate or inheritance tax return may also be required if the decedent owned assets outside of California


Once you have determined which assets are included in Trustor’s estate, you should take steps to secure this property. Cash should be placed in an appropriate bank account. Securities, jewelry and other valuables should be secured in safe deposit boxes. Automobiles, art and other personal property should likewise be secured. Credit card companies should be notified of Trustor’s death, and all credit cards should be destroyed or returned to the issuer promptly. Real property and other valuables should be property insured, or if already insured, the adequacy of insurance should be confirmed. Real property should be occupied if possible, otherwise vandalism coverage may not be available.


Your next step is to determine the value of the assets as of the date of death, and the “alternate valuation” six months after death (if values have declined), in which case the lower value can be used for estate tax purposes. For some assets (i.e., bank accounts, insurance policies, retirement plans, automobiles, etc.), valuation will be accomplished fairly easily. However, you will need a professional appraisal for many types of assets, including: real property, partnership interests, stock of closely held businesses, and rare art and jewelry. The date of death value of real property, partnership interests, and the stock of closely held businesses may also be subject to discounts or premiums, which must be documented properly. Hard-to-value assets should be appraised by professional appraisers.


In some cases the trust may have very little cash or other liquid assets with which to pay the expenses incurred in administering the trust/estate and/or taxes. You must be careful in deciding which assets to sell and/or whether to borrow money in order to pay expenses. In addition, you must be careful in making distributions to the beneficiaries. For example, the son who was supposed to inherit Dad’s ‘65 Mustang may not appreciate your selling it to make the mortgage payments on the house going to his sister. Seeking the assistance of an attorney or accountant can help you avoid making decisions that will have adverse liability and tax consequences.


Under California law, Trustees have a duty to account for every penny that comes into, or goes out of, the trust. Getting into careful and detailed accounting habits early will help satisfy this duty as well as stave off disgruntled beneficiaries.


As with assets, you should make a list of all debts owed by the Trustor and the names of the creditors to whom these debts are owed. Many of the payments in satisfaction of these debts will be deductible on either the estate tax return and/or another tax return. Additionally, deductions are available for funeral bills, last illness expenses, attorney and accountant fees, appraisal fees, insurance premiums, mortgage payments, brokerfees,real propertymaintenance and any normal household bills incurred prior to but paid after death. The availability of these tax deductions reinforces the need to keep accurate and complete records of payments made from the trust/estate.


Determining and gathering the assets, and paying the Trust (and possibly the Trustor’s) just debts is a very important part of a Trustee’s duties.

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.