What are the duties of a Trustee?

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 her immediate duties and responsibilities, now that her mother has passed? Should she reassess the family home? File taxes? Close the bank accounts? Notify each of the beneficiaries?

Ron

Dear Ron,

Your sister-in-law, as trustee, has to conduct a trust administration. Many people think that it’s really easy to administer a trust. We call this the “Living Trust Myth”.  Trust administration is easiest where the successor trustees and the beneficiaries are the same people and they each get equal shares. Unless there’s fighting, it’s not so hard to divide everything by two. In this case, there are five siblings who are not beneficiaries. It can still be easy, but that depends on the trustee being honest, organized, diplomatic, and good with her own money - if she isn’t, she shouldn’t be in charge of other people’s money.

The first step is for the trustee to notify the trust beneficiaries and legal heirs of her mother (probably the same people) 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 countdown on their right 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 trustee doesn’t want to have to ask for anything back if the trust was declared invalid by court order.

The second step is for the trustee to review all of her mother’s assets and determine exactly what has to be done to each asset to get it to the beneficiaries.  Assets outside of the trust may have to go through probate or be collected using Small Estate Affidavits. 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, she may then pay off the bills, sell the assets that have to be sold. When everything is ready to be distributed, the trustee should either get the beneficiaries to waive their right to an accounting of the trust, or bite the bullet and pay a bookkeeper to prepare one. Then, the trustee can distribute everything except for a reserve for taxes and unexpected debts.

Many trustees think that they can do all of this themselves. In your case, this would be a bad idea for your sister-in-law. If she makes a mistake that is discovered only after she’s given away all the money, she may have to pay to fix it out of her own pocket. She should hire an attorney, at trust expense, to make sure she does the job right and to protect herself from potential liabilities.

Len & Rosie

Husband died 2 years ago, still going through Probate proceedings.....

Dear Len & Rosie,

My mother’s second husband died two years ago. Shouldn’t all of his assets have been left to my mother? Why is his will still in probate and why would his will go to probate if she is his surviving spouse? I don’t understand why his will is in probate and she is still alive and needs this money to live on.

Jackie

Dear Jackie,

When a married person dies, there is usually no probate. Most married couples own all of their assets in joint tenancy, or within a revocable trust. Most of the time, everything passes outright to the surviving spouse by right of survivorship, or is at least held within a trust for the benefit of the surviving spouse for his or her lifetime.

However, some couples hold title to their assets separately. If her husband’s will left everything to her, your mother could collect his estate outside of probate with a spousal property order obtained from the court. But in many second marriages, one or both spouses have children or other beneficiaries that they want to protect. If your step-father left everything to your mother, she could make a new will and leave his beneficiaries nothing. Your step-father’s will may have disinherited your mother, or left his estate in a testamentary trust (a trust created by a will) for her lifetime benefit.

There are other legal issues that may complicate matters. If your step-father’s will was executed prior to his marriage with your mother, she may be entitled to an intestate share of his estate, either one-third or one-half of the total value of his separate property assets. Unless the terms of the will state that is was made in contemplation of marriage to your mother, the will is effectively revoked with respect to your mother, and she would be entitled to an intestate share of the estate.

Another complication is that if your mother and step-father married before his retirement, then part of his estate is community property half owned by your mother, and part of it is separate property owned solely by him.  It can become very complicated trying to figure out what exactly what consists of your mother’s interest in her husband’s estate.

If your mother needs money right now, she does not necessarily have to wait until the end of probate. She can ask the executor to provide her with a monthly family allowance for her support. If the executor is not willing to do this, then she has the right to petition the court for support from the estate.

If your mother has not already done so, now is a good time for her to sit down with a trusts and estates attorney to review her rights with respect to her husband’s estate.

Len & Rosie