Trust Administration 101: Seven First Steps Every Successor Trustee Should Know
When a loved one passes away with a revocable living trust, the court‐supervised probate you’ve heard horror stories about can usually be avoided—but that doesn’t mean there’s nothing to do. California law imposes clear duties on the successor trustee, and mishandling them can create family disputes, tax penalties, and even personal liability. Here’s a concise, step-by-step game plan you can share with clients (or bookmark yourself) to keep the process on track.
1. Read—and Understand—the Trust Instrument
Before touching a single bank account, sit down with the full trust document and any amendments. Confirm you’re actually the named successor trustee, clarify distribution instructions, and note any age-based or staggered payouts. If the language feels opaque, hire counsel early; misinterpretations are far costlier than a one-hour legal consult.
2. Secure Original Estate-Planning Documents
Collect the original trust, pour-over will, and signed powers of attorney. You’ll need the pour-over will to lodge with the county within 30 days of death (Probate Code §8200) and the certification to open or re-title accounts.
3. Inventory and Safeguard Assets
Create a master list of trust assets—real estate, brokerage and retirement accounts, life-insurance proceeds payable to the trust, tangible personal property, and digital assets. Switch home-insurance policies to a trustee-owned status. Physical items of significant value (jewelry, firearms, collectibles) should be photographed and stored securely to head off “souvenir” temptations.
4. Notify Beneficiaries and Relevant Agencies
California trustees must send a §16061.7 notice to all trust beneficiaries and legal heirs within 60 days of the settlor’s death. This starts a 120-day statute of limitations for contesting the trust—so procrastination keeps the cloud of litigation hanging longer. Also file Form 56 with the IRS to alert them you’re the fiduciary and order an employer-identification number (EIN) for the trust’s post-death administration phase.
5. Open a Dedicated Trust Checking Account
Co-mingling personal funds with trust money is a breach of fiduciary duty. Open a new account under the trust’s EIN to collect incoming dividends, rent, or sale proceeds and to pay administration expenses. Maintain meticulous records: every deposit, disbursement, and receipt should be traceable.
6. Value the Estate and Address Taxes
For estates exceeding the current federal exemption or containing hard-to-value assets like closely held businesses, hire a qualified appraiser. Even if no estate tax is due, you’ll need date-of-death values to establish new basis for capital-gains purposes. File a final 1040 for the decedent, and if income is generated during administration, a 1041 fiduciary return for the trust.
7. Distribute—and Document—According to the Trust
Once debts, expenses, and tax liabilities are satisfied, prepare a proposed distribution schedule. Obtain signed receipts from beneficiaries when they receive funds or property; this protects you from claims of unequal treatment. Consider a “receipt and release” agreement that acknowledges the beneficiary’s share was received and releases you from further liability.
Serving as a successor trustee is an honor—and a job. Transparent communication, diligent record-keeping, and timely professional guidance are the pillars of a smooth administration. If you’ve just inherited the trustee hat, don’t go it alone; an experienced trust-administration attorney can turn a daunting checklist into an orderly roadmap, allowing you to focus on honoring your loved one’s legacy. Contact us immediately for assistance with the administration process.