- Walnut Creek and San Francisco Trust Administration Lawyers
- 5 Stages of Trust Administration
- The Difference Between Trust Administration and Probate
- Standard of Trust Management
- Hundreds of Successful Trust Administration
- Tangible Personal Property
- Accountings and Providing Information to Beneficiaries
- Tax Issues
- Trust Distributions
- Petition of Instructions
Trust AdministrationTrust administration is the processes by which assets owned by a decedent’s trust are transferred to the trust beneficiaries upon the decedent’s death. We represent both trustees and beneficiaries, and specialize it representing trustees dealing with difficult beneficiaries, or beneficiaries who are concerned that their trustee may not be acting appropriately
IF YOU HAVE JUST BECOME THE SUCCESSOR TRUSTEE OF A TRUST, YOU SHOULD:
Understand your fiduciary duties.
This is described in more detail below, but briefly – you work for the beneficiaries and must put their interests above your own. You should answer their questions and provide them with information
Be prepared to account for every penny.
Even if the trust says you do not need to account to the beneficiaries, you will probably have to prepare an accounting if a beneficiary asks for one. This means you should never pay in cash, should keep a journal of every debit and credit, and should save every receipt.
Don’t do it yourself.
In addition to administering trusts, we litigate all types of trust and estate disputes. Many of these cases arise because a trustee began the trust administration process without legal advice and made one of the many common mistakes that lead to litigation. These mistakes include ignoring beneficiaries’ requests for information; failing to account; commingling trust funds with their own, failing to file tax returns; not sending beneficiaries the required legal notices; and many other common mistakes. If you are a beneficiary, and are concerned that your trustee may have breached his or her fiduciary duty, we can help you hold the trustee accountable, or even seek the appointment of a new trustee.
Walnut Creek and San Francisco Trust Administration Lawyers
Our lawyers have guided hundreds of clients through the trust administration process. Our clients often come from the Walnut Creek, East Bay region, but we also frequently represent trustees from outside the Bay Area or out of state.If you call us, we will give you an initial overview of the trust administration process at no charge. If you decide to hire us, we will ask you to compile the documents we need to begin the process: the decedent’s original will, a signed copy of the trust and any amendments, copies of the deeds to any real property, an original death certificate, recent account statements for all of the decedent’s financial accounts, the names and addresses of all beneficiaries and heirs, and the name of the decedent’s accountant.
We will then prepare the first round of documents necessary to begin the process, and meet with you to execute those documents and advise you on what you should do next. If there is a dispute between the trustee and a beneficiary, or if the trustee decides to file an accounting or file a petition for instructions (both discussed below), the case would be filed in the county where the trust has its “principal place of administration.” Under Probate Code § 17002(a), a trust’s principal place of administration is “the usual place where the day-to-day activity of the trust is carried on by the trustee or its representative who is primarily responsible for the administration of the trust.” Thus, if a decedent died in Oakland, owned real estate in San Francisco, and the trustee lives in Walnut Creek, the principal place of administration would be Walnut Creek, and all court filings would be in Contra Costa County.
5 Stages of Trust Administration
- The assets of the decedent are identified and retitled;
- Creditors and taxes are paid;
- The decedent’s final income tax return and a return for the estate or trust are filed;
- An accounting (of the assets on hand, credits, expenses) is usually prepared unless it is waived by the beneficiaries; and
- The assets are distributed to the beneficiaries, with the trustee often holding a reserve fund for unanticipated expenses.
Our lawyers will guide you through this confusing, tedious, and sometimes even frightening process
The Difference Between Trust Administration and Probate
The primary difference between a trust administration and a probate is that probate is court supervised and the court must approve many of the acts of the executor. As such, a probate is typically longer and more expensive than a trust administration. That said, all but the simplest administrations take several months, and most last about a year. Our lawyers typically advise clients to take care of the funeral and other family and personal matters before worrying about legal issues. However, because this process is often more complicated than it seems, and there are many traps for the unwary, it is a good idea to contact a trust administration attorney within a few weeks of a decedent’s death.
Standard of Trust Management
If you are a trustee, you act in a fiduciary capacity, which means you owe the beneficiaries the highest standard of care under the law, placing their interests ahead of your own. One well-known case described the duty this way:
A trustee is held to something stricter than the morals of the market place. Not honesty alone, but the punctilio of an honor the most sensitive, is then the standard of behavior… the level of conduct for fiduciaries [has] been kept at a level higher than that trodden by the crowd. Meinhard v. Salmon, 164 N.E. 545 (N.Y. 1928).
In managing trust property, you must use at least ordinary business ability; if you have special skills you will be held to a higher standard of care. Your management will be judged in light of the circumstances existing when transactions occur, rather than with the benefit of hindsight. If you abuse your trustee powers, you may be held liable for loss or damage to the trust estate. If you act in bad faith, you could be required to personally reimburse the trust for funds lost or misappropriated, for your legal fees, and even the beneficiaries’ legal fees.
While acting as trustee, you are subject to the “Prudent Person Rule”:
The trustee shall administer the trust with reasonable care, skill, and caution under the circumstances then prevailing that a prudent person acting in a like capacity would use in the conduct of an enterprise of like character and with like aims to accomplish the purposes of the trust as determined from the trust instrument.
Hundreds of Successful Trust Administration
A trustee ordinarily has a duty to invest trust property, preserve it, and make it productive. Unless the trust provides otherwise, a trustee must comply with the Uniform Prudent Investor Act, which begins at California Probate Code § 16045 (“UPIA”). A trustee should scrutinize the trust investments to ensure they comply with the UPIA. Even if the trust exempts itself from the UPIA, a trustee should be cautious about violating its provisions. The UPIA, requires trustees to meet the following standard of care:
(a) A trustee shall invest and manage trust assets as a prudent investor would, by considering the purposes, terms, distribution requirements, and other circumstances of the trust. In satisfying this standard, the
trustee shall exercise reasonable care, skill, and caution.
(b) A trustee’s investment and management decisions respecting individual assets and courses of action must be evaluated not in isolation, but in the context of the trust portfolio as a whole and as a part of an overall investment strategy having risk and return objectives reasonably suited to the trust.
- General economic conditions.
- The possible effect of inflation or deflation.
- The expected tax consequences of investment decisions or strategies.
- The role that each investment or course of action plays within the overall trust portfolio.
- The expected total return from income and the appreciation of capital.
- Other resources of the beneficiaries known to the trustee as determined from information provided by the beneficiaries.
- Needs for liquidity, regularity of income, and preservation or appreciation of capital.
- An asset’s special relationship or special value, if any, to the purposes of the trust or to one or more of the beneficiaries.
A trustee also has a duty to diversify trust assets. Unless the trust instrument provides otherwise or it is imprudent to do so, the trustee should reduce the risk of loss by reasonably diversifying the portfolio while considering the following factors:
- Size, terms, and purpose of the trust;
- Representation of different asset classes;
- Correlation of returns between the different asset classes;
- Needs of the beneficiaries and the type of return produced by each investment;
- General economic conditions;
- Volatility of each asset and the percentage of trust corpus that the asset represents;
- Percentage of the total company that the trust holds;
- Market for the asset;
- Tax planning implications; and
- Relative security of each investment or account (e.g., are the accounts FDIC insured?)
In summary, a trustee typically has broad discretion in investing trust assets, but must act prudently and in the best interests of the trust. This broad grant of discretion will not shield a trustee from liability if he or she does not exercise these powers reasonably. Therefore, if you question the propriety of any investment, consult with a trust administration attorney before buying or selling.
Tangible Personal Property
Tangible personal property (such as jewelry, furniture, pictures, and other personal belongings) is distributed as provided in the will or trust. If the beneficiaries agree on a division of the tangible personal property, this can usually be handled informally.
If the beneficiaries disagree, tangible personal property should be handled in a more formal manner. Because disputes over tangible personal belongings are as common as they are divisive, a trustee should secure the tangible personal property and control access to the house or other location containing tangible personal property. If an estate tax return is required, any item (or group of items in a single collection) with a fair market value of $3,000 or more must be separately appraised for estate tax purposes.
A trustee should be particularly cautious if the decedent owned any guns. California law requires that most gun transfers occur only after the trustee has ensured that the person receiving the gun is eligible to possess firearms. The transfers should usually occur through a Federal Firearms Licensee.
Accountings and Providing Information to Beneficiaries
A trustee has a duty to make the beneficiaries aware of the existence of the trust, keep them informed of the administration, and respond to their reasonable requests for information. Our trust administration attorneys advise trustees on the specific actions necessary to fulfill these duties.
The duty to account is more onerous — a trustee must account for all trust transactions annually. This requirement can be waived by the trust itself, or by all the beneficiaries in writing. A trust accounting is a unique form of accounting that meets the particular requirements of the Probate Code.
Some trustees prepare an accounting even when an accounting is not required because it gives the beneficiaries a better understanding and appreciation for the complexity of the trustee’s job, helps to avoid misunderstandings by disclosing all transactions, and starts the running of a three-year statute of limitations for all matters disclosed in the accounting.
Although we often recommend formal accountings, if the beneficiaries agree to waive an accounting, we will prepare the appropriate waiver forms.
A trustee is responsible for filing the settlor’s final income tax return, any unfiled tax returns, fiduciary returns for the trust, and an estate tax return, if required. The trustee is typically responsible for paying any outstanding tax liabilities, and may be personally liable for failing to file any unfiled returns or failing to pay tax liabilities. Our attorneys work with the trustee’s CPA and review necessary returns and allocations.
If an estate tax return is required, our lawyers will need to know the fair market value of all assets owned by the settlor or the trust at the time of death. Appraisals may be required for real property, closely held business interests, and tangible personal property.
If the settlor made any gifts during the year of death (or any prior year for which no gift tax return was filed) that exceeded the annual gift tax exclusion, the trustee may also be required to file a gift tax return.
Final state and federal personal income tax returns will be required for the period from January 1 through the date of the settlor’s death. These returns will include income generated by the assets of the trust before the date of death. Income generated by the assets in the trust after death is reportable on the fiduciary returns.
Trusts must file fiduciary income tax returns (state FTB Form 541 and IRS Form 1041) covering the period from the date of death to the final distributions from the trust. The trust’s first taxable year will be a short taxable year commencing with the date of settlor’s death and ending on December 31, or earlier if trust administration is completed before that date. The returns for this period will be due on April 15 of the year following the year of death.
Beneficiaries often ask the trustee when they will receive their inheritance. Many people, having heard that living trusts avoid probate, assume that all administration procedures are avoided and that the trust property somehow passes to them automatically. Many beneficiaries are disappointed to learn that the trust administration process usually takes months rather than days or weeks. Trustees usually have an easier time with the beneficiaries—avoiding misunderstandings, saving time, and reducing costs—if they manage the beneficiaries’ expectations.
Trust distributions often occur in several stages. In some cases a trustee can make preliminary distributions of a portion of the trust estate within a few months. If a trustee makes one or more preliminary distribution, they should reserve sufficient funds for payment of estate taxes, income taxes, administrative expenses, legal and trustee fees, debts and liabilities, etc.
Petition of Instructions
There is a popular misconception that a trust avoids all possibility of court involvement. If assets held outside the trust exceed $150,000, a probate may be required for the trustee to collect those assets and add them to the trust.
If a beneficiary believes the trustee has breached his or her fiduciary duty, the beneficiary may file a petition with the court to, among other things, compel the trustee to account; to redress an alleged breach of trust; to remove or suspend the trustee; or to surcharge the trustee.
Sometimes a trustee is uncertain about a particular course of action (e.g., selling a business or real property, or commencing litigation). In such cases, the trustee may petition the court for instructions about how to proceed. The beneficiaries are given notice of the hearing and a copy of the petition that describes the proposed action. The matter will then be addressed in court, and the beneficiaries will have an opportunity to appear and be heard. If the court approves the trustee’s petition, the trustee is protected against claims by the beneficiaries regarding that transaction.
Barr & Young’s trust administration attorneys have years of experience assisting the Danvilleand San Francisco communities with issues relating to trusts and probate. Allow us the opportunity to help you and your family avoid painful litigation.
Barr & Young represents clients throughout Northern California, including Danville, Walnut Creek, San Francisco, Pleasant Hill, Livermore, and Oakland.