The Grantor's Death

The purpose of the trust unfolds once the grantor dies. If the trust document has been done in a clear and unambiguous manner and a diligent and responsible successor trustee has been chosen to administer the trust assets, probate and the involvement of lawyers can be avoided after the grantor’s death.

This chapter deals with the job of the successor trustee and will describe the necessary steps of the decedent’s family.

Determination of the Successor Trustee

Check of Trust Documents

After the grantor passed away, a family that is aware of the existence of a living trust has to find the trust documents and read them carefully.

In many cases the successor trustee of the decedent will already know that he or she is named successor trustee of the living trust, because the grantor has told the respective person so. In this case the successor trustee will know, where the trust documents are stored.

Unfortunately sometimes a grantor dies and nobody knows where the important documents are stored. If a thorough search of the personal belongings does not uncover the lost documents it may be useful to contact the surrounding banks if the grantor had a safe deposit box with them. Sometimes the trust documents can be found there.

Acceptance of the Trustee

Then the trust document needs to be checked to determine the named successor trustee. Under Californian state law the named trustee is not obliged to take over the trustee’s duties. An act of acceptance is required to become a trustee. The acceptance can be done by signing the trust document or by signing a separate declaration of acceptance or by knowingly exercising powers of a trustee. From my experience as a San Francisco trust attorney, the latter is the more common way to accept the position as a trustee.

Alternatively the named trustee may reject trusteeship. If the trustee does not explicitly accept or does not exercise trustee’s powers within a reasonable time the trustee is deemed to have rejected the trusteeship by law. In these cases the named individual does not become trustee.

Once a person has accepted trusteeship, he or she can only resign according to the terms of the trust, with the consent of all beneficiaries or by court order.

On acceptance the person named as successor trustee is then in charge of the administration of the trust according to its terms. Sometimes more than one trustee is named in the trust document. Then all of the designated trustees serve together to fulfill the trust’s assignations. Multiple trustees can be empowered by the trust document to act either individually or with consent of all trustees only. However each trustee has to separately accept the trust in order to become a trustee.

Alternative Successor Trustees

If the named successor trustee is not available, the trust document should provide an alternative successor trustee. In this case the trustee’s duties fall to the alternative successor trustee according to the terms of the trust. Alternative trustees have the right to reject trusteeship as well as a ordinary successor trustee.

A trustee could also appoint a new trustee if the declaration of trust empowers the trustee to do so. Usually such a clause is restricted to cases where no other explicitly named alternative trustee is available. In that instance the new trustee takes over as a successor trustee.

Removing a Trustee

There will be some cases where beneficiaries do not come along very well with the trustee, who has been named by the grantor. However in general there is not much beneficiaries can do about this. Only in rare circumstances a trustee might be removable by lawsuit.

In California the probate division of the superior courts (often referred to as “probate court”) has jurisdiction over living trusts. The probate court has the power to either remove a trustee or make the trustee pay the beneficiaries for any loss to the trust. Under Californian law the probate court can remove a trustee for the following reasons:

If there is a Breach of trust
If the Trustee has more debts than assets or is otherwise unfit to act as trustee
If the trust cannot be administered because of hostility or lack of cooperation between co-trustees
If the trustee does not want to be the trustee any more
If the trustee's payment is excessive
If the trustee personally does not qualify for beeing a trustee. Usually people who professionally helped to draft the trust document shall not be named as a trustee (For further reference see Probate Code Section 15642 and 21350).

The Trustee’s Duties upon Death of the Grantor

Reading of Documents

Once a trustee has accepted trusteeship, he or she will be in charge of the trust. From this point the trustee starts to accomplish his mission.

The first step a successor trustee has to do, once he receives the trust document is to read it thoroughly. The reason for this is the high flexibility of living trusts. As outlined before, no trust is alike and so differ the duties of the trustee from case to case.

Therefore in order to determine his duties the trustee must study the trust document.
From my experience as a Californian trust attorney in most cases there are similar steps and duties to be followed by the successor trustee.

Affidavit

In order to be able to act for the trust, the successor trustee must obtain proof of his position and his powers. There is only one little problem that comes with it. Because the execution of a trust is in general not controlled by a court, there is no fixed legal procedure of how to obtain such a document.

Therefore the successor trustee has to draft a document, that states his position. This document is widely known as “Affidavit of Assumption of Duties by Successor Trustee” (sometimes simply “Acknowledgment of Trusteeship”). With the affidavit the successor trustee also accepts being a trustee and therewith waives the right to reject trusteeship.

In some states it is convention to register such a document with the County’s recorders office. In addition sometimes it is advised to attach a certified copy of the grantor’s death certificate to the Affidavit. In my opinion, that can’t hurt.

Appraisal of Trust Assets

One of the first things, a trustee has to do is to appraise all the major assets of the trust. This is mainly for tax reasons and secondly also good for the beneficiaries because they will then know what they’re getting. The beneficiaries might also need the price of the major assets to determine a taxable profit or a potential deductable loss in property value that might occur after the grantor dies.

The appraisal of assets can sometimes be very difficult, because certain assets have no price tag. For example usually the value of a house can only be estimated until it is actually sold. Unless the trustee is a real estate specialist, he might need the help of an expert to determine the value of a house. The same might apply to other assets. Some assets are easy to asses though. If the grantor had e.g. stock certificates, the market price on the day of death can simply be taken from the daily newspaper. Other assets might evidently not cover the costs for a specialist appraiser. In these cases the trustee might estimate the value based on common sense.

Information of the Beneficiaries

Usually the trust document requires the trustee to provide basic information about the current state of the trust to the beneficiaries. The information duty might – depending on the trust document – for example stipulate, that the trustee has to inform the beneficiaries about some form of action that he or she wants to undertake.

Besides the legal obligation it is always a good idea for the trustees to keep a good relationship with the beneficiaries. This is also wise for the trustee because it can avoid arising conflicts from the very starting point on.

Transferring Property to the Beneficiaries

Some trusts only require the trustee to serve for the short period that is needed to distribute all the trust assets to the designated beneficiaries. In this case the duty of the trustee is restricted to this. The trustee is obligated to distribute the trust assets right away and is not entitled to hold property for an extended period of time. Furthermore in this situation it is rarely necessary that the trustee sells any property to get cash. Usually all there is to do for the trustee is to transfer the property to the designated beneficiaries.

In shared living trusts it is usually the surviving spouse’s job to distribute the property of the deceased. In the usual constellation the surviving spouse’s living trust will receive most of the assets. Thus there won’t be much transfer work to do for the surviving spouse. The property – according to a popular clause – usually simply changes ownership from the original shared living trust to the new living trust of the surviving spouse. Only if the original trust stipulates to distribute parts of the decedents estate to a different beneficiary, the spouse as trustee has to ensure the proper distribution of that specific piece of property.

If the surviving spouses wishes to adjust the formal title of the respective property to the new ownership (surviving spouse as trustee of a living trust) a formal transfer is necessary like it’s been outlined above.

In general it can be said that the practicalities of property transfer are the same for the successor trustee as they had been for the former grantor/trustee of the living trust. Therefore all I mentioned before regarding the funding and defunding of a living trust applies here as well: The trustee can simply hand over property without document of title to the designated beneficiaries. The trustee also has the power initiate a change of title for other property. In this context the trustee will frequently require the aforementioned Affidavit of Assumption of Duties by Successor Trustee.

Long Term Management of a Trust

If the terms of the trust provide a longer management period for the trust property the fiduciary duties of the trustee become more important. Often this happens when the grantor has left property to minors or if the grantor himself becomes incapacitated. In that case the assents are not to be distributed right away.
Therefore it is the obligation of the trustee to take reasonable care of the trust assets and manage them according to the terms of the trust. The fiduciary duties might be specified in the declaration of trust. Often common or statute law influence the trustee’s duties as well. If you need further advice in this matter the lawyers of Rinne Legal in San Francisco, Sacramento, Walnut Creek, Fairfield and Oakland will be able to help and assist.

Preparing and Filing of Tax Returns

One very important duty of the trustee is his responsibility to file due tax returns. A trustee must consider and check the applicability of any federal or state tax the grantor or the trust might owe. Specifically a trustee may (depending on state and federal law) have to file a tax return for

Federal estate tax (due nine month after the grantor’s death)
State law inheritance tax
Federal income tax for the deceased grantor (final tax return, usually due on April 15 of the year that follows the grantor’s death)

Both successor trustee and the executor, named in the grantors will (see below) are legally required to file these returns. But as the same person usually servers as successor trustee and as executor of the will, in general there is only one person responsible for the tax returns.

Unless the successor trustee is a tax professional, often the successor trustee will be overstrained with the tax returns. However most trusts allow the successor trustee to engage a tax adviser and pay him or her out of the trust’s funds. As a San Francisco trust attorney I usually advise successor trustees to make use of this power.

Otherwise a faulty tax return might result in a breach of the fiduciary duties of the trustee, that – in the worst case – could lead to a lawsuit against the trustee himself.