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What is Trust Administration California?

A common estate planning tactic used to avoid probate is to create and place all your valuable assets into a trust. Trust administration is the process in which these assets are transferred to the beneficiaries listed in the agreement upon the trustor’s death. Administering a trust can be an arduous and time-consuming experience as it requires a mountain of paperwork and constant communication with both beneficiaries and third-party agencies.

Trustees have a fiduciary duty to ensure the decedent’s assets are redistributed according to the terms of the trust. Breaching one or more could result in the trustee being surcharged, suspended, or even removed from the trust. That is why it is crucial trustees familiarize themselves with their duties outlined under California law before they make any major decisions for the trust.

• Duty to Execute the Terms of the Trust – The trustee has a duty to administer the trust according to the trust’s provisions.
• Duty of Loyalty – Thus duty ensures the trustee is administering the trust in the best interests of the beneficiaries listed.
• Duty to Impartiality – It’s not uncommon for a trust to have multiple beneficiaries. This duty indicates the trustee must treats each beneficiary fairly when redistributing assets and to never favor one beneficiary over the other. This is especially relevant when the trustee is also listed as a beneficiary under the trust.
• Duty to Avoid Conflicts of Interest – The trustee must operate in the best interest of the beneficiaries listed in the trust. Therefore, they must not use or deal with the assets in the trust for their own profit or for any other purpose unrelated to the trust.
• Duty to Account to Beneficiaries – Trustees are required to provide periodic trust accountings to the listed beneficiaries under California law unless the trust’s terms waive it. If the beneficiary requests it, the trustee must provide an accounting even if the trust waives the annual option.
• Duty to Not Comingle Assets – Trustees are not allowed to comingle their own assets with assets placed under the trust. All property in the trust should be separate.
• Duty to Disclose – The trustee must disclose all material facts necessary to protect the beneficiary’s interests within the trust.
• Duty Not to Delegate – Trustees cannot delegate tasks related to the trust they are reasonably capable of doing themselves. They are not allowed to transfer their authority to others without authorization from the court. However, this does not prohibit the trustee from hiring an attorney.
• Duty to Enforce and Defend Claims – Trustees must enforce claims that are considered to be prudent and reasonable. They don’t have to enforce every claim, but only those that are deemed cost-effective and likely to succeed. Trustees are also obligated to defend claims that could result in a loss for the trust.
• Duty to Preserve Property – Trustees are required under law to take reasonable steps to take, keep control of, and to preserve trust property

What Powers Do Trustees Have?

The powers of a trustee can vary based on the terms of the trust. Some trustees are given basically unlimited power when administering and other have their scope of authority limited. If the power isn’t listed in the trust agreement or in California’s probate code, then you can assume that you are not entitled to it as a trustee.

Listed below is a list of powers trustees generally have.

• Sell property held in the trust unless the terms specifically forbid it
• If disputes occur, litigate on behalf of the trust
• Utilize trust assets to purchase additional property for the trust
• Pay third-party professionals (such as an attorney, CPA, or real estate broker) to help with trust administration duties
• Invest on behalf of the trust utilizing its assets
• Distribute assets to beneficiaries according to the terms of the trust agreement
• Receive “reasonable” compensation for their work as a trustee
• Refuse appointment as a trustee or resign from their role

How Do You Administer a Trust?

It’s incredibly important you understand that trust administration is a complicated process that requires knowledge in multiple fields. It’s quite frankly impossible to cover the whole subject on how to administer a trust in one article. Below is simply a general overview of the trustee’s responsibilities once they’re formally appointed.

1. Identify All Important Documents – Your first step will be to identify and locate the decedent’s estate plan and all documentation related to the trust. That will include copies of the death certificate, burial/funeral/memorial instructions, certified copies of the death certificate from the coroner’s office, as well as the trust agreement. Familiarize yourself with these documents because they will be the guideline to the decedent’s asset redistribution.
2. Provide Notice – California trust laws require that notice of the trust administration is provided to the trust’s beneficiaries and heirs. These notices must be sent out within 60 days of the date of death that caused the change in the trust or initiated the trust administration period. If the beneficiary requests it, a complete copy of the terms of the trust must be sent. It’s advised you send notice of the trust administration to creditors as well. While this isn’t a requirement, most estate planning experts would recommend it as it will allow you to guard the estate against any unknown or contested claims. Creditors will only have 120 fays to file before the claim is barred.
3. Locate and Value All Assets – One of the key roles of a trustee is to ensure the settlor’s assets are preserved and protected; meaning every asset is accounted for and none are lost, stolen or depleted. Trustees who fail to do this may be held liable in the end. Which is why, once the settlor is deceased, the trust property should be identified and then immediately evaluated through a professional appraisal. Inventorying all assets within the settlor’s trust will also give you an idea of what remains outside the trust. The settlor may have forgotten to add an account or asset to their trust for various reasons. Errors like this will definitely require the help of a California trust administration attorney.
4. Identify Debts or Liabilities – All debts the settlor owed while they were alive must be settled during trust administration. Nothing can be distributed to you or the other beneficiaries until all debts and liabilities have been resolved. During this time, as a trustee, you may need to evaluate whether trust assets, including real estate or a business, should be liquidated. You’ll also be responsible for all ongoing expenses related to the trust administration including legal fees, accounting fees, mortgage payments, homeowner or condominium association fees, etc.
5. Prudently Invest in Trust Assets — Trustees have a fiduciary duty to invest assets in a prudent and reasonable manner. Essentially, you must choose a method of investing that minimizes risk but also earns a reasonable return. Any real property, for instance, should be leased or put on the market unless the trust has specific instructions for that property.
6. Obtain Titles – All titles of assets contained in the trust must be obtained by the successor trustee.
7. File Appropriate Tax Documents – Trustees are entrusted with the responsibility of filing all appropriate tax documents for the settlor upon death including their state and federal income tax return. Failure to file these documents in time could result in unnecessary tax liabilities for the trust.
8. Maintain Proper Accounting Throughout – Beneficiaries are entitled to a complete accounting of all transactions that occur during administration. As a trustee, you must ensure you have maintained proper accounting throughout the process so you can provide it if requested by the beneficiary.
9. Prepare Distribution Plan – It’s the duty of the trustee to prepare an efficient and effective plan of distribution that follows the terms of the trust and minimizes overall expenses. You must follow the instructions outlined by the trust documents and any other applicable state law when preparing this plan. In addition, all beneficiaries must give consent to the plan before it’s executed.
10. Distribute Trust Assets – Once the plan is finalized, the trustee will take the necessary steps to distribute the trust which may include preparations of deeds, title transfer, and other legal avenues. In order to avoid problems at any stage of the trust administration process, we recommend you contact an experienced California trust attorney.

Additional Resources

Living Trust FAQ
Visit the official website for the Superior Court of Santa Clara County to learn more about how living trusts operate in the world of estate planning. Access the site to learn what a living trust is, the advantages of setting one up, what makes a trust revocable and irrevocable, if you still need a will, and other valuable answers to your frequently asked questions regarding living trusts.

Trust Law | California Statutes
Visit the official website for California’s Statutes to research the rules and procedures surrounding trusts. Access the site to learn what trust administration entails, requirements for appraisal, how your accounting should be formatted, and other valuable information you may need.

Trust and Estate Administration Attorneys in Ventura County, Los Angeles County and Central California

If you’ve been appointed as a successor trustee and are overwhelmed with the administration process, contact Botti & Morison. Our attorneys have over 90 years of experience assisting successor trustees navigate the mountains of paperwork and legal requirements trust administration demands. Let us help you take reins of the trust so you can rest assured all matters will be settled properly by seasoned professionals.