What a successor trustee in California must do in the first months of an administration, and the duties that apply from the day the trust is accepted
When the settlor of a revocable trust dies, the successor trustee takes over management of the trust property and begins the administration. Most successor trustees are family members who have never served before. The first months set the course of the administration, and several of the deadlines in that period are short.
Accepting the trust
A person named as trustee is not required to serve. Under Probate Code section 15600, a trustee accepts by signing the trust instrument or a separate written acceptance, or by knowingly exercising powers or performing duties under the trust. Once the trust is accepted, the duties described below apply. A trustee who later wants to leave may resign only by a method in section 15640: as the trust instrument provides, with the consent of the adult current beneficiaries of an irrevocable trust, or with court approval.
The duties that apply from the start
The trustee must administer the trust according to its terms under Probate Code section 16000. The trustee must act solely in the interest of the beneficiaries under section 16002, and must deal impartially with them under section 16003. The trustee must take control of and preserve the trust property under section 16006, make it productive under section 16007, and keep it separate from the trustee’s own property and titled in the name of the trust under section 16009. The trustee must use the care, skill and caution of a prudent person under section 16040, and investments are governed by the Uniform Prudent Investor Act, including the duty to diversify under section 16048.
A trustee does not have to do the work alone. Under section 16247, the trustee may hire attorneys, accountants, investment advisers, appraisers and other agents to advise or assist in the administration.
The notification by trustee
When a revocable trust becomes irrevocable at the settlor’s death, the trustee must serve a notification on each beneficiary and each heir of the deceased settlor under Probate Code section 16061.7. The notification is due within 60 days after the death, or within 60 days after the trustee learns of a person entitled to it. It must identify the settlor and the date the trust instrument was signed, give the name, address and telephone number of each trustee, state the address of the trust’s principal place of administration, state that the recipient may request a copy of the trust’s terms, and include the statutory warning about the time to contest the trust.
The notification also starts the contest period, because under section 16061.8 a person served may not bring an action to contest the trust more than 120 days after service, or 60 days after a copy of the trust terms requested during that period is delivered, whichever is later. A trustee who fails to serve the notification on a beneficiary is responsible for the resulting damages, attorney’s fees and costs under section 16061.9, unless the trustee made a reasonably diligent effort to comply, and is liable to an heir who is not a beneficiary for the resulting damages. On request, the trustee must provide a copy of the terms of the trust under section 16061.5.
Securing and valuing the property
The early practical work is to locate and secure the trust property: retitle accounts, change the insurance on real property to name the trustee, collect mail and statements, and stop automatic payments that no longer apply. The trustee should obtain values as of the date of death for every asset. Those values set the new income tax basis of most of the property under section 1014 of the Internal Revenue Code, and they are the starting point for the accounting and for any division among the beneficiaries.
Real property has a separate deadline under Revenue and Taxation Code section 480(b): when real property passes through a trust at death, the trustee must file a change in ownership statement with the assessor in each county where the decedent owned real property within 150 days after the death. Any claim for the parent and child exclusion under Proposition 19 has separate deadlines, which are discussed in Proposition 19 and the Family Home.
Creditors
A trustee may, but need not, start a formal claims procedure. Under Probate Code section 19003, if no probate is pending, the trustee may file a proposed notice to creditors with the court and then publish and serve it. Creditors must then file claims within the later of four months after first publication or 60 days after notice is mailed or delivered to them, under section 19100. Without that procedure, claims against the decedent are generally cut off one year after the death under Code of Civil Procedure section 366.2. Whether to use the procedure depends on how much is known about the decedent’s debts.
Tax filings
A trustee should give the IRS notice of the fiduciary relationship on Form 56, as section 6903 contemplates, and obtain a taxpayer identification number for the trust. The decedent’s final individual income tax returns must be filed for the year of death. The trust files its own income tax returns under section 6012, and the trustee and the executor, if there is one, may elect under section 645 to treat the trust as part of the estate for income tax purposes. If an estate tax return is required, it is due nine months after the death under section 6075. Even when no estate tax is due, a surviving spouse may want the return filed to elect portability of the unused exclusion under section 2010(c)(5)(A), and Revenue Procedure 2022-32 allows that election up to five years after the death for estates not otherwise required to file. The CPA should decide which returns are required and when.
Keeping the beneficiaries informed
The trustee must keep the beneficiaries reasonably informed of the trust and its administration under Probate Code section 16060, and must respond to reasonable requests for information under section 16061. Under section 16062, the trustee must account at least annually, at the termination of the trust and on a change of trustee to each beneficiary to whom income or principal is required or authorized to be distributed, subject to the exceptions in section 16064. Regular written reports also reduce the risk of later disputes.
Case study: a successor trustee who started late
A son became successor trustee of his father’s trust when his father died. He knew the trust left everything equally to him and his two sisters, and he assumed there was nothing formal to do until the house was sold. Four months later, one sister asked for a copy of the trust and an explanation of why nothing had been distributed.
When he came to us, the 60 day period for the notification had passed. We served the notification immediately, with copies of the trust, which started the 120 day contest period from that date. We filed the change in ownership statement for the house, which was still within the 150 day period, and obtained a date of death appraisal. His CPA obtained a taxpayer identification number for the trust and prepared the father’s final return. The trustee then sent the beneficiaries a written report of the assets and the plan for the sale, and the sister’s concerns were resolved without a petition.
How we can help
Worden Williams advises successor trustees from the first week of an administration through the final distribution. We prepare the notification and the filings, coordinate the appraisals and the tax work with the trust’s CPA, and prepare the accountings the Probate Code requires. We also represent beneficiaries whose trustees have not met these duties.
This article is general information about California and federal law as of its date. It is not legal or tax advice and does not create an attorney-client relationship. Case studies are composites drawn from the kinds of matters the firm handles; names, places, amounts and other details have been changed, and the result in any matter depends on its own facts. Tax results should be confirmed with your CPA. Responsible attorney: Tomer T. Gutman, Worden Williams LLP, 462 Stevens Avenue, Suite 100, Solana Beach, California 92075, (858) 755-6604.