July 24, 2018
(Typical A/B provisions (Survivor’s Trust and Credit Shelter Trust)
Initial Contact: Once the meeting has been confirmed, it is important to 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 discussed below.
Checklists: It is pertinent to have a complete and thorough client meeting checklist for Trust Administration. When a spouse has passed, you may find that most of the first meeting is spent consoling and reassuring the survivor. This checklist is designed mostly for internal purposes, but can be expanded upon for client intake information also.
Applications For ID Numbers: During the initial meeting, it is a good idea to 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.
Trust Review: During or after the initial meeting, it is necessary to review the Trust 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. How to address certain issues/problems that come up in the initial Trust Review will be discussed in following chapters.
Trustee’s Duties: After the initial client meeting, the successor Trustee should be reminded of their duties and responsibilities. This letter should also include any reminders necessary regarding additional documents or information needed.
Retainer Agreement: If a Retainer Agreement was not executed at the initial meeting, one is often sent to the Trustee with the memorandum regarding their duties. It is advisable to handle Trust Administration on an hourly basis.
Notification of Trustee Under Probate Code §1606L7: The Trustee is required to give Notice to all beneficiaries under the Trust and all heirs of the decedent (Exhibit F). 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 this is not required. In addition, if any possible litigation is anticipated, the Notification should be sent via certified mail.
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 real estate appraisals have yet 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. Some attorneys rely on broker’s price opinions to confirm such values. Any stock holdings are valued based on the average of the high and low stock price on the date of death. While completing the Inventory, it is a good idea to determine the vesting of the various assets (i.e., trust v. non-trust). 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 if a Petition under Hegstaad could remedy any assets not held properly in the name of the Trust.
Real Property Documents: Declarations must be recorded in the County where the decedent owned property. The Los Angeles County Assessor requires a Change of Ownership-Death of Real Property Owner Statement to be attached to the Declaration at the time of recording. The Orange County Assessor requires the Preliminary Change of Ownership Report to be attached to the Declaration at the time of recording.
Allocation of Trust Assets: Once the Inventory has been completed, the Trust assets need to be allocated according to the terms of the Trust. Several considerations must be made in allocating the Trust assets based on the needs of the surviving spouse, including current and long term income needs, other retirement resources available and whether or not the surviving spouse intends to stay in the residence (or the State).
Re-registration of Trust Assets: New deeds need to be prepared and recorded for real property to be allocated among the subtrusts. The preliminary change of ownership reports vary slightly depending upon which subtrust the property is being allocated to (Exhibit L). 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. In such event, it may be necessary to assist with the completion of any forms to ensure that the vesting is completed properly.
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. This value is based on all assets, whether in the name of the Trust or not. The value is based on one-half of the couple’s community property and all of the deceased’s separate property, if any. In calculating the available exemption of the decedent, it must also be determined if any prior gifts were made. Accordingly, it is vital to obtain prior gift tax returns from the surviving spouse. If the surviving spouse is not certain if any prior gift tax returns had been filed, such information can be obtained from the IRS. 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.
Accounting: Beneficiaries of an irrevocable Trust are entitled to an accounting 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.
Formal Allocation – Memorialize the Allocation between sub-trusts in a formal Allocation Agreement signed by surviving spouse and Trustee and spreadsheet attached which shows which assets are being allocated to each sub-trust. This can be very important for Successor Trustees in case assets are later mismanaged, not titled property, etc.
THE BASICS OF TRUST ADMINISTRATION IN CALIFORNIA ON SECOND DEATH
The steps in the administration upon the second death are very similar. Accordingly, the many of the steps described in the first chapter should be repeated. There are slight variations in some of the steps which have been described below:
Conflict of Interest: In representing Co-Trustees who may also have varying beneficial interests, it is essential to have an executed Conflict of Interest Waiver. 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.
Inventory of Assets: The successor trustee(s) should be advised to gather all of the decedent’s mail. It will be necessary to 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. It is advisable to 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.
Real Property Documents: Declarations must again be recorded in the County where the decedent owned property. The Los Angeles County Assessor again requires the Change of Ownership Statement-Death of Real Property Owner to be attached to the Declaration at the time of recording. The Orange County Assessor requires the Preliminary Change of Ownership Report to be attached to the Declaration at the time of recording.
Claim for Reassessment Exclusions 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 that the assessor conform and return a copy of the same as proof of their 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 principal 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 date of death.
Trust Certifications: Trust Certifications and instructions need to be provided to again be provided to any financial institutions managing accounts in the name of the Trust. Estate Tax Return: An estate tax return is required to be filed and taxes paid within 9 months of the date of death when the gross amount of decedent’s estate exceeds the federal exemption amount. The tax must be paid within nine months of death in order to avoid any interest accruing on the unpaid balance. An extension of time can be obtained to pay and file, but this does not eliminate the tax being due on or before the nine month deadline.
Distribution: Memorialize the distribution in a formal written distribution agreement signed by the Successor Trustees and all beneficiaries. This serves as written confirmation on what each beneficiary is receiving and contains a mutual release of liability for the Trustee and his/her agents. This can also contain a formal waiver of accounting which relieves the Trustee of this burden if all beneficiaries are amenable.