DIY Trustee dropping money

March 16, 2021

One of the most common reasons cited for creating an estate plan is to avoid probate.  While it is true that a properly funded Trust can avoid probate, that does not mean having a Trust avoids the need to do anything on the death of the individual(s) who created the Trust.    When an individual dies, similar to probate, creditors need to be ascertained; assets need to be marshalled and inventoried and when there are collectibles and/or real property, assets need to be appraised.  The main benefits of doing all of this within a Trust include avoiding the delays of court proceedings and avoiding the court costs and compensation due the Executor and the Executor’s attorney, which are set by statute.    

Since Trust administrations usually do not require court proceedings, successor trustees often attempt to handle the administration of a Trust without an attorney or other professional advice.  While it is not impossible, I do not advise it.  A good attorney can often save the Trust money by avoiding some common mistakes self-represented trustees are prone to make.   It’s also important to note that in trying to save the Trust attorneys fees, many trustees expose themselves to potential liability by failing to fulfil their obligations as trustee appropriately.

One of the most common issues I am contacted about by beneficiaries is the failure of the trustee to keep them informed as to their rights or even the existence of the decedent’s Trust.  Although trust administrations do not require the formalities of probate, that does not mean that the trustee is not required to communicate with the beneficiaries throughout the administration and even those who are not beneficiaries when there is a change in the trustee or if the Trust becomes irrevocable.  Both of these scenarios are likely to occur when the Trust creator passes away.  At that time, a Notification by Trustee containing the language set forth in Probate  Code Section 16061.7 is required to be sent to the nearest living relatives and any beneficiaries of the decedent’s Trust.

The purpose of a Notification by Trustee is to advise the non-beneficiary relatives and beneficiaries that the decedent died with a Trust; to establish the name and contact information of the acting successor trustee; and to advise anyone receiving the notice of the place of administration, which establishes the proper place to bring a lawsuit over the terms of the Trust or to enforce a beneficiary’s rights under the Trust.  While the notice also advises the recipient of a right to receive a copy of the Trust, many attorneys will include a copy of the Trust with the notice.  The benefit of including a copy of the Trust is that it shortens the amount of time an heir or a dissatisfied beneficiary has to bring suit to contest the validity of the Trust.   Providing this Notification by Trustee is so important that Probate Code Section 16061.9 allows anyone not properly receiving notice to seek damages against the Trustee for the failure to properly serve the Notification by Trustee.

Even the most sophisticated and knowledgeable Trustee can often forget to file the final income tax returns for the decedent and the appropriate fiduciary tax returns for the Trust.  Even if the decedent owed little or no taxes, it is important to contact a qualified CPA or Enrolled Agent to assist in preparing the appropriate returns on time to avoid penalties and interest.  If the Trustee fails to timely file the returns or pay the taxes, he or she can be personally liable for the penalties and interest charged to the Trust.

 An often-unknown responsibility of the Trustee is the need to file the appropriate Claim for Reassessment Exclusion form and/or Change in Ownership Statement form with the Assessor’s Office in the county where the property is located within either three years of the date of death or prior to the property being sold, whichever occurs first, so that supplemental taxes can be calculated, or a reassessment exclusion can be processed.   

In the past few months, I have been contacted by three separate families who have held on to the decedent’s residence in excess of 10 years, without filing a Claim for Reassessment Exclusion form to advise the Assessor that the property should not be reassessed as it was a transfer between a deceased parent and children.  All three families are now facing reassessment (with significant supplemental back taxes and potential penalties) on real property that should be qualified for at least a partial reassessment exclusion.  While I am hopeful that we can negotiate at least a partial forgiveness of the past due taxes and penalties, it is not a guarantee and it severely complicates the administration of the decedent’s estate and/or Trust. 

It was my experience that the Los Angeles County Assessor’s Office was already taking several months to process the Claim for Reassessment Exclusion forms and/or Change in Ownership forms prior to COVID.  I have been told that they are taking up to a year to process these claims now.  That means that a Trustee cannot fully distribute the proceeds of sale or all of the cash on hand until they know what, if any, supplemental taxes are to be assessed on the real property.  Additionally, like the failure to timely file income tax returns failure to timely file these forms, resulting in penalties and/or interest on the unpaid supplemental taxes, could arguably be charged to the Trustee as it was his or her failure to timely file the proper forms that caused the Trust to incur the penalties and/or interest. 

These are just some of the scenarios that can cost the Trust more money and potentially put the Trustee at risk.  Some others are selling real property to family members for less than fair market value; failure to keep beneficiaries informed; failure to properly account; failure to keep adequate time records and overcharging the Trust estate for trustee compensation.  Ironically, these areas where a trustee will attempt to cut corners on keeping the beneficiaries informed are also most likely to cause a trustee to be brought before the court on breach of fiduciary duty claims. 

While the benefits of having a properly drafted and fully funded Trust tilt the scales in favor of a Trust over not having one, that does not mean that nothing needs to be done on the death of the creator.  Knowing that the trustee will have these responsibilities and encouraging your trustee to retain counsel to advise them will not only help to ensure that your Trust is administered as efficiently and expeditiously as possible, but it could also help keep your trustee from facing personal liability for his or her own failure to properly administer the Trust.

Contact Cannon Legal Firm today. We proudly serve Seal Beach, Long Beach and the surrounding communities for all your Estate Planning, Trust & Estate Litigation, Trust Administration and Probate needs. Contact us for a free consultation or schedule a Zoom or telephone appointment online.  Dana@CannonLegalFirm.com   –    562.543.4529 (Voice and Text)   –   www.CannonLegalFirm.com

About the author 

Dana Cannon

Dana M. Cannon has many years of experience with Probates, Conservatorships, Trusts and Estates. During that time she has advised clients on multi-million dollar trust administrations; handled complex litigation; performed estate planning; and represented clients in contested and uncontested conservatorship, guardianship, probate and trust matters. She has been a volunteer at the Los Angeles Superior Court Pro Bono Probate Settlement Program since it began.  She understands that these matters may not just involve money. They are often fueled by emotions and because of that this isn’t just business, it’s personal. She looks forward to assisting you with your legal needs.

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