Dear Len & Rosie, My mother-in-law passed away last week. She has a trust, with her six children named in it. Her oldest daughter is the trustee. What are the trustee’s immediate duties and responsibilities? Should she reassess the family home? File taxes? Close bank accounts? Notify beneficiaries?

Ron

Dear Ron,

Welcome to trust administration. Many people suffer from what we call the Living Trust Myth, which comes down to believing that once someone creates a trust, that’s all there is to it. Somehow, everything is supposed to magically be distributed to the beneficiaries. Not true.

We are the first to admit that it’s possible to cut corners. If the trustee and all of the beneficiaries get along well enough, then trust administration can become an exercise of shoveling everything into the names of the children, as soon as the bills and taxes are paid. But even then, there’s a lot a trustee must do.

The first step is for the trustee to notify the trust beneficiaries and legal heirs of the trust settlors (the trust creators) of the existence of the trust with a notice under California Probate Code section 16061.7. Even disinherited children are entitled to this notice. Receiving this notice triggers a 120-day limitation on the right of a recipient to contest the validity of the trust. This time period is why many trustees won’t distribute anything until a few months after the date of death.

The second step is for the trustee to get everything retitled into his or her name as trustee of the trust. This can be simple, but really depends on how each and every asset owned by the settlors is titled. Assets outside of the trust may have to go through probate. Assets held in joint tenancy and with pay-on-death beneficiaries pass outside of the trust and are usually collected by the beneficiaries directly.

After everything is in the name of the trustee, the trustee may then pay off the bills, sell the properties that have to be sold and pay the taxes. The surviving settlor may require final income tax returns for the person who left the trust. The trust itself will likely need its own income tax return, and a federal estate tax return will be due if the surviving settlor owned more than $2 million (for 2006 and 2007) gross, before subtracting the debts he or she owed.

After the debts are paid and the assets that had to be liquidated have been, then the trustee may distribute almost everything to the beneficiaries. The trustee should retain a reserve to cover the administrative costs and the income taxes due next year, but shouldn’t keep anything beyond that unless the trust says so.

Many trustees suffer from the opinion that they can do all of this themselves, and while it’s true that it’s possible in some cases, it’s not such a good idea unless the trustee is experienced and the beneficiaries are cooperative. Your sister-in-law should retain an attorney, at trust expense, to assist her with trust administration, especially if her brother-in-law is already asking questions.

Len & Rosie

Tillem and McNichol are elder law attorneys. Contact them at 846 Broadway, Sonoma, CA 95476, or 996-4505, or www.lentillem.com. Len also answers legal questions weekdays at noon and Sundays from 4-7 p.m. on KGO Radio 810 AM.