Trust Administration & Probate Frequently Asked Questions

Trusts are basically fiduciary agreements between a trustee and the grantor, who is the person making the trust. Fiduciary simply means the agreement is based on the trust and confidence. The trust document gives the trustee the authority to manage the trust assets and distribute them to the named beneficiaries pursuant to the terms of the trust agreement. A trust may be used in place of a will or may be used in conjunction with a will where it only applies to certain property.

All trusts are categorized as either revocable or irrevocable, which is an important distinction based on how the trust operates. A revocable trust, more commonly referred to as a living trust, provides the grantor with the ability to make changes to the terms of the trust, or revoke the trust altogether, at any time while they are still alive. After the grantor’s death, the trust becomes irrevocable. A revocable trust is flexible because it can be modified to account for changes in your circumstances or intentions. With a revocable trust, the trustee does not take control until after your death or incapacity.

The purpose of estate administration is to supervise the transfer of the estate of the deceased in an organized way, based on the probate laws of the state where the deceased resided. An executor or administrator is appointed to manage this process. There are two main goals of the probate process — paying the debts of the deceased and distributing assets to beneficiaries. Although the exact procedure and requirements may vary from one state to the next, the same general process is involved.

In California, the probate process begins in the superior court for the county where the deceased was living at the time of his or her death. The first step is filing the initial petition with the court. This filing initiates the administrative process. The next step is a hearing, which is typically set for thirty days after the petition is filed. Notice of the hearing will be published in order to inform all interested parties of the proceedings, including potential heirs and creditors. The requirements for the notice are established by the court.

Before any assets are distributed to heirs and beneficiaries, creditors with legitimate claims must be paid first. California requires creditors to submit their claims within four months after the appointment of the executor. Funeral expenses must also be taken care of, as well as, estate taxes. California imposes estate taxes in addition to those owed to the federal government. Finally, the remaining assets are distributed to the appropriate heirs and beneficiaries.

One reason a probate lawyer needs to know about the probate code is to understand the laws of intestate succession.  These laws determine who gets what if you die without a will.  In general terms, if you die without a will in Sacramento, your assets will go to your closest relatives.

If you die with surviving children, but no spouse, parents or siblings, your children will inherit everything in your estate.  If you die with a surviving spouse, but no children, parents or siblings, then your spouse inherits everything.  Your parents are next in line, meaning, if you have no surviving spouse, children or siblings, they will inherit.  The same is true, if only siblings survive you.

If you leave a spouse and children behind, your spouse inherits all of your community property and one-half or one-third of your separate property.  Your children inherit one-half or two-thirds of your separate property.

Probate is designed to create a “final accounting” upon death. It is the legal process of “proving up” a Will, or verifying that a Will is valid, takes place in one of two instances. First, if a person dies leaving behind a Will, or second, if the deceased has died intestate, that is, has not left behind a Will or estate plan of any type or the Will cannot be found.

Depending on the complexity of the estate and the thoroughness with which accounting has been carried out before death, probate can either be a relatively simple task or a daunting one. Be aware that no matter the situation, probate may be a lengthy process often taking months or possibly years to play out, and one which may take a considerable amount of an executor’s time.

To summarize the process, probate can be broken into six basic steps:

1. Validation of the Will
2. Appoint executor
3. Inventory estate
4. Pay claims against the estate
5. Pay estate taxes
6. Distribute remaining assets

Each of these steps involve legal documentation and validation, and more importantly, proper accounting each step of the way.

Probate begins and ends with the special Probate Court set up in each state to handle estate issues. (Sometimes known as the Orphan’s or Chancery Court in certain states.) All actions taken regarding the estate are accountable to this court, and must be noted and reported regularly. This court is staffed by special judges qualified to oversee estate resolution issues.

To summarize the process, trust administration can be broken into five basic steps:

1. Inventory assets
2. Determine estate tax
3. Division of trust assets
4. File the Federal and State tax forms
5. Distributions to beneficiaries

Although the trust administration process seems relatively straightforward, there are several reasons it can sometimes be drawn out over several months or even years. The first step, the inventory of assets, must be completed before the trust administration can begin, and this can be difficult to complete depending upon the prior organization and the size and complexity of the decedent’s assets. Next, the 706 estate tax return must be filed within 9 months, or 15 months if an extension is filed. Often, it is prudent to wait until the last minute to file this form. If the spouse of the decedent is in failing health and may pass away before the deadline, then both 706 forms can be used to maximize tax advantages to the estate. The final step, asset distribution, cannot take place until the 706 has been filed, and even then should not take place until the “Closing Letter” is received from the IRS certifying acceptance of the 706 return. This closing letter will take a minimum of 6 to 8 months, and as long as 3 years, to arrive after the 706 is filed. In addition, there may be a state estate or inheritance tax return required, even if a federal return is not required.

While having a living trust can significantly reduce costs compared to probate, there is still a considerable amount of work to be done in properly administering even a simple living trust. The services of an attorney are required, and that person or firm should be compensated fairly for their services. It is important to remember that the fees allowed for trust administration are usually much lower than those for probate, and there is generally less work involved, as there is less involvement of the courts and state bureaucracy.

The answer depends upon the language of the trust document. Certain trusts include “pick and choose” language that allows trustees to selectively place assets into the “B” trust.

If you are a relative of the deceased, this is simple in most states. To transfer the title of vehicles owned by the deceased, simply take the death certificate to the DMV, and perform the transfer, paying whatever fees they require. If not a relative, bringing along the will and or any trust documents indicating your status should be sufficient.

Social Security will continue to send out benefit checks until they are notified of an individual’s death. The executor/spouse/trustee should contact the local Social Security Administration office and notify them of the death, or if a benefit check is received, send it back with a letter notifying them. This is important. If checks continue to be deposited, the recipient can incur liability later when Social Security learns of the recipient’s death.