elderly man looking over estate planning document

How to Administer a Trust in California

Many people are interested in creating a living trust in California to avoid probate and to enjoy many of the other advantages that a living trust provides. But not everyone understands how to administer a trust in California after the death of the trust’s initial creator, often called the settlor. There are many rules you need to know if you find yourself in this position. A California trust administration attorney can answer your questions, draft your trust documents, and help you administer the trust.

Notifying Creditors and Beneficiaries

The first step for a trustee, once the original settlor dies, is often to reach out to all the beneficiaries and potential creditors. Beneficiaries need to know that they are named in the trust. Known creditors, like the doctor and hospital involved in the settlor’s final illness, need to submit their final bills if they want to be paid. 

Creating an Inventory of the Assets

One of the main functions of a living trust is to distribute a person’s assets after they die. You need to find out all the property the decedent had. Most of it should be titled in the name of the trust.  But other assets intended to be in the trust might not bear the correct title. 

It can take quite some time to discover all the assets. Sometimes, the trustee needs to wait until the annual tax documents arrive to complete the inventory.

Managing the Assets

A trustee has a duty to manage the assets of the trust and preserve the assets’  market value to the greatest extent possible. The trustee will want to find out how the assets are titled, have appraisals performed, and determine what needs to be done to manage the different types of assets. 

Some assets, like large amounts of cash, might need to be invested for the period of trust administration. If the decedent owned real property, the trustee may need to engage in property management, for example, renting, selling, maintaining, repairing, and securing the property.

Evaluate Debts and Other Claims

When the bills come in, the trustee will need to evaluate these debts to make sure they are valid. Once the trustee analyzes all claims against the estate, he or she should pay the valid debts. Be sure to keep a careful accounting of all debts paid. Include all details you have about the debts that got paid as well as the ones that you denied.

Prepare Tax Filings

You will need to prepare, or hire an accountant to prepare, the personal income tax return for the decedent’s last year of life and the estate returns for each year or partial year that the estate remains open and the trust administration continues.  

Keep Careful Records

California requires trustees to keep accounting records. You will want to use the correct forms required by law. Beneficiaries have a right to receive an accounting. Failure to create the accounting can be grounds for a judge to remove you as a trustee.

Formulate a Plan of Distribution

After paying all the debts of the estate, you will want to devise a plan and schedule for the distribution of assets to the beneficiaries. Memorialize this distribution plan in writing and share it with the beneficiaries.

Settle the Trust

When wrapping up the estate, you will want to resolve any remaining disputes. You can then make the distributions after getting the consent of all beneficiaries. The distribution of assets will involve retitling assets from the name of the trust to the name of the recipient. After all distributions are complete and all expenses of the administration are paid, you will need to close out the trust accounts and prepare the final accounting. 

Hiring a Professional to Help You Handle the Trust

You do not have to do all of this work by yourself. You don’t need to put your life on hold for months because someone named you the trustee of the living trust. A California estate planning attorney can take care of many of these steps for you so that you can get back to your own life. Contact our office today for legal assistance.

Attorney shaking hand with client and discussing trust administration.

Common Problems in Trust Administration

Trust agreements are an essential and versatile tool in estate planning. Many individuals use one or more trusts to protect assets, avoid probate, reduce tax liability, or delay distributions to minors and other beneficiaries. However, trustees can run into problems with the trust administration, especially if they did not consult a California estate planning attorney when developing or overseeing the trusts. 

Our team of skilled trusts and estate attorneys focuses on planning ahead to foresee and, when possible, avoid potential conflicts.  But when a conflict arises, we also stand ready to represent a trustee or beneficiary in litigating and resolving the conflict.

Problems Trustees Face When Administering a Trust

There are several issues that a trustee might encounter when administering a trust. Some common problems trustees face as they work to fulfill the terms of the trust agreement include:

  • Allegations of Mismanagement of Trust Funds — A beneficiary may allege that a trustee did not invest or manage the trust property in the best interests of the beneficiaries. Allegations of mismanagement of trust assets often arise if a beneficiary does not agree with how the trustee is performing his or her duties.
  • Disputes Regarding Authority — One or more individuals may dispute whether the trustee has authority over the trust assets. This situation is common when a trustee dies, and a successor trustee takes control over the trust funds and assets. In most cases, a review of the trust can resolve the dispute, unless the trust’s wording is vague or there are other errors within the trust document.
  • Demands for Distributions from the Trust — The trust document should provide specific directions and conditions for distributions to be made directly to beneficiaries or on behalf of beneficiaries. In many cases, a trust may give the trustee discretion regarding distributions. In the latter situation, there are often disputes when beneficiaries believe they are entitled to distributions from the trust, but the trustee does not believe the distributions are in the best interest of the trust or the beneficiaries.
  • Failure to Transfer Assets to the Trust — The trustee may believe he or she has the authority to administer certain assets. However, if the owner failed to take the legal steps to transfer the assets into the trust, the trustee may have no authority over those assets. It is up to the trustee to accurately identify and secure trust assets upon assuming the role of trustee, and to seek court relief if the assets have not been properly transferred into the trust.
  • Outdated Terms or Provisions — Unfortunately, some trusts may contain terms and provisions that become outdated or void. A trustee may need to seek court approval for certain actions if the terms of the trust are outdated or unclear.
  • Deceased or Incapacitated Beneficiaries — A trustee can have problems with the trust administration when a beneficiary dies or becomes incapacitated after the trust is created. If the trust was not amended or did not address these issues, the trustee may need to seek direction from a court before proceeding with the trust administration. 
  • Contests of the Trust — The beneficiaries or other individuals may contest the trust agreement or certain terms of the trust. The trustee and beneficiaries may need to fight the contest in court. Trustees or beneficiaries need to be sure they find skilled trial attorneys with experience in trust and estate litigation to ensure that their rights are adequately protected. 

Contact a California Estate Planning Attorney for Help

The above problems with trust administration can be time-consuming, stressful, and costly for the trust and the trustee, or for a beneficiary who feels his or her rights are not being protected.  We recommend that a trustee or beneficiary should seek advice from a Hillsborough, CA estate planning attorney as soon as possible if you encounter problems with the administration of a trust. Contact us today for a consultation.

a female attorney talking to a husband and wife pointing at a trust document

What Are California Trustees Responsible For?

Being named as a trustee is an important role. Trustees have certain legal duties that they must fulfill, in addition to adhering to the terms of the trust agreement. Even though the trustee has the right to manage trust assets, and the discretion to administer the assets reasonably, the trustee is also bound by certain fiduciary obligations to the trust beneficiaries. A California trust administration attorney can help you review qualifications for a trustee. If you are a trustee, an attorney can answer questions you might have regarding your duties and responsibilities as a trustee.

Duties and Responsibilities of Trustees in California

The trust document itself dictates many of the trustee’s duties and responsibilities. However, trustees are also bound by the duties outlined in the California Probate Code under the Trust Administration section. 

Some of the duties and responsibilities outlined in the code include:

  • The code requires a trustee to administer the trust in the best interests of the trust beneficiaries. 
  • A trustee of a revocable trust should follow the written directions of the settlor or someone appointed by the settlor to give the trustee directions. An exception may be if the written directions modify the trust.  In that case, the trustee does not need to follow the directions unless they follow the procedures outlined in the trust for modifying the terms of the trust.
  • A trustee must treat multiple beneficiaries fairly and impartially when dealing with the beneficiaries and managing the trust property. 
  • A trustee cannot use or destroy trust property for the trustee’s benefit. 
  • Trustees cannot require beneficiaries to release the trustee from liability as a condition of making disbursements from the trust.
  • A trustee should take reasonable steps to enforce claims that are part of the trust, avoid accepting roles that are adverse to the trust and defend actions that could harm the trust assets.

The most important role of a trustee is to serve as a fiduciary. As a fiduciary, the trustee must always act in the best interest of the trust beneficiaries. That duty typically guides all other duties and responsibilities of the trustee. A trustee should also maintain the trust assets separate and apart from all of his or her other property, and maintain detailed, current, and accurate books and records for the trust. Beneficiaries may request an accounting of the trust assets periodically. The trustee may have a duty to provide the accounting, depending on the terms of the trust and other factors. 

Trustees also have a duty not to delegate their responsibilities and duties to another party when the trustee is reasonably able to perform the duties. This requirement does not prohibit a trustee from employing professionals, such as attorneys, accountants, financial advisors or property managers, when necessary to assist with the administration of the trust.

The type of trust can dictate some of the trustee’s duties and responsibilities.  A trustee should always read the trust document in full to ensure the trustee understands the duties and responsibilities outlined within the trust document. 

Contact a California Estate-Planning Attorney For Help

Trustees may consult with a California estate planning attorney when they have questions regarding their duties and responsibilities. They may retain the services of an attorney when they need assistance with various legal matters that impact the trust. Talk with our California estate planning attorneys today