Probate Administration

If your estate plan is based on a Will, or if you have no estate plan, then the administration and distribution of your assets is generally subject to the ‘probate administration process.’ If all of your assets pass outside your ‘probate estate’ (e.g., such as trust property, community property owned by married couples, jointly held property, and property with a named beneficiary), there is no ‘probate estate,’ and you do not need to involve the court in distributing the property. Otherwise, your assets are considered ‘probate property’ after your death, and must be administered and distributed in accordance with the California Probate Code.

Although the law does not require a person to have a lawyer in the ‘probate administration process,’ the process is extremely complicated, and it would be most helpful for your representative to engage the services of an experienced estate planning attorney if probate is necessary.

There are typically four steps to the ’probate administration process:’

Step 1 – Determine If Probate Administration is Necessary

As stated above, if all your assets pass outside your ‘probate estate,’ then you have no ‘probate property,’ and no ‘probate administration’ is necessary.

If, however, your assets are considered ‘probate property,’ then your representative will have one of three choices to distribute that property:

First, if your probate estate totals $150,000 or less, and there is no real property located in California, your representative can transfer your personal property by completing an affidavit, and does not need to probate the estate.

Second, if your probate estate totals $150,000 or less, and the estate includes real property located in California, your representative will have to file an abbreviated court petition to determine succession, and after a hearing the court will approve the administration and distribution of your assets.

Third, if your probate estate exceeds $150,000, then your representative must go through the regular probate process to administer and distribute your assets.

 Step 2 – File a Probate Petition

If a regular probate process is necessary, then either the executor named in the Will, or an intended administrator if there is no Will, will file an appropriate petition for probate of your estate. The court will determine whether the Will is a valid Will, who your heirs are, whether family members and beneficiaries named in the Will have been properly notified, and will appoint either an executor or administrator of your estate.

Step 3 – Probate Administration

After being appointed by the court, the executor or administrator will prepare and file an inventory and appraisal of your probate assets, sell property if necessary, pay your debts, prepare estate and income tax returns, and pay any estate and income taxes that may be due.

When all your probate assets have been collected and inventoried, property sold if necessary, all debts and taxes have been paid, and any disputes are resolved, then your estate is ‘ready to be closed.’

Step 4 – Closing the Estate

To close the estate, your executor or administrator will file a petition with the court, together with a full accounting of the assets, income and expenses during the probate process. If there are any disputes, your representative may also file a petition to resolve those disputes.

The petition to close the estate will include a report of the activities of the representative, and request approval of fees for the representative and the attorney.

After a hearing, the court will approve distribution of your ‘probate estate,’ either in accordance with the terms of your Will or with the provisions of the Probate Code if there is no Will. When all the assets have been distributed as ordered by the court, the probate administration process is over and the representative can ask the probate court to be discharged.

Conclusion

The ‘probate administration process’ is often complicated and confusing, and can seem overwhelming at times. The process is sometimes even further complicated by emotions and conflicts that arise among the estate beneficiaries or towards the representative as a result of family dynamics and the grieving process. If not properly dealt with, these conflicts often play out in court in protracted and expensive probate litigation. We help representatives avoid this result by providing competent and capable assistance throughout the probate administration process.

If you would like further information regarding an estate that requires ‘probate administration,’ please contact us to schedule a complimentary consultation.

Trust Administration

If your estate plan is based on a revocable trust, then the administration and distribution of your assets may be handled by the trustee without court supervision, although access to the court is available to resolve problems or uncertainties, and use of court procedures may be advisable for actions taken with respect to certain trust assets. By working with an experienced estate planning attorney, trust administration becomes a straightforward process that provides great peace of mind to both the trustee and beneficiaries.

Trust administration is typically a six-step process:

Step 1 – Notice to Trust Beneficiaries and to Heirs; Will Filed with Court

Trust administration begins with a required probate code notice to all trust beneficiaries and heirs of the settlors. As part of the initial trust administration process, your attorney will also ask you to provide him or her with the decedent’s original will so it may be lodged with the court, which is required even if no probate is going to be opened.

Step 2 – Dealing with Real Property

The second steps involves changing title to any trust real property to the name of the successor trustee, so that the property can be managed, sold, or distributed as part of the trust administration. Appropriate documents are filed with the local recorder and assessor to make the transfer, and to claim any appropriate exemptions from property tax reassessment. Your attorney will prepare these documents for you to sign.

Step 3 – Collecting Other Trust Assets; Inventory and Appraisal

At the same time the successor trustee is dealing with the real property, the trustee will also need to identify all of the other trust assets, and have the title to those assets transferred into the trustee’s name. After obtaining a federal tax identification number for the trust, the trustee should have all remaining trust assets transferred to the trustee’s name, using the new identification number. If he trust is to be split into multiple share trusts as part of the distribution, the successor trustee should get a separate federal tax identification number for each separate trust.

If in the process of collecting all the decedent’s assets you discover that the decedent failed to place all the intended assets into his or her trust prior to death, the assets outside the trust will remain part of the decedent’s estate, but are subject to the probate process. If the proper documents are in place, a simple petition can be filed and a probate can be avoided.

Once the successor trustee has all the trust assets identified and under his or her control, the trustee should prepare an inventory of all trust assets, and obtain appraisals of all the trust’s real property and of any trust assets that do not have a readily ascertainable value.

Step 4 – Paying Debts and Taxes

The successor trustee is obligated to pay the decedent’s valid debts and to satisfy any estate and income tax liabilities. If the total value of the decedent’s estate, including both trust and non-trust assets, is more than the estate tax exemption amount, then it will be necessary to file a Form 706 federal estate tax return within nine months of the decedent’s death. When administering larger estates, the trustee will want to work closely with an attorney and accountant to evaluate whether a federal estate tax return is required, and to ensure the return is filed on time. The Form 706 return is quite complicated, and the trustee should begin work on it as soon as possible if a return is required.

For a married couple, there is generally no estate tax payable after the death of the first spouse, due to the unlimited marital deduction. However, at the death of the surviving spouse or of a single individual, estate taxes can become a very important issue.

The successor trustee will also file the Form 1040 individual income tax return for the decedent for the year of the decedent’s death, and a Form 1041 fiduciary income tax return for every year of the trust’s existing after the death of the decedent.

Because a successor trustee may be held personally liable for unpaid taxes, the trustee will want to work closely with an attorney and accountant to make sure that all tax liabilities are satisfied prior to distributing the trust assets to the beneficiaries of the trust.

Step 5 – The Accounting

Once a settlor of a revocable trust loses capacity or dies, their revocable trust becomes irrevocable, and in that event the California Probate Code requires that the successor trustee who is administering the irrevocable trust prepare and render an accounting of their actions and administration of the trust.

Some trust documents expressly require an accounting, while others waive accountings. Even where a trust document waives an accounting, however, the law may still require it. The successor trustee should consult with an attorney early in the administration process to determine the scope of his or her accounting obligation. Even where the trust waives the requirement of a formal accounting, the Trustee will still want to keep detailed accounting records in case the trust administration goes into litigation, and the court requires an accounting.

Step 6 – Distribution

After the successor trustee has collected all the decedent’s assets, paid all the decedent’s debts, filed all the decedent’s estate and income tax returns and paid any taxes due, and prepared and rendered any required trust accounting, the trustee will be in a position to distribute the remaining trust assets.

After all the decedent’s assets have been collected, debts have been paid, tax returns have been filed, and tax liabilities have been satisfied, the accounting prepared and rendered (if required), you will be in a position to distribute the remaining trust assets.

The trust document will dictate how the trust assets are to be distributed among the beneficiaries If trust assets are to be distributed outright to beneficiaries, and trustee will make those transfers. If trust assets are to be retained in trust for one or more beneficiaries, the successor trustee will establish sub-trusts for those beneficiaries. Common sub-trusts include separate share trusts for minors, and separate bypass trusts, survivor’s trusts, and potentially marital trusts for a married couple. The trustee is responsible for identifying any sub-trusts that are required under the trust document, and to ensure that any sub-trusts are properly funded. The trustee should consult with an attorney regarding the funding of any sub-trusts prior to making any allocations of assets to the sub-trusts or distributions to any of the trust beneficiaries. After the sub-trusts are properly funded, distributions of future income and principal may be made to the beneficiaries as provided in the trust document.

In many cases the successor trustee will enter into a Termination Agreement with the trust’s beneficiaries, to protect the successor trustee while obtaining an agreement among the beneficiaries for the final distribution of trust assets. A Termination Agreement between the trustee and beneficiaries can be extremely helpful in avoiding the threat of future litigation by trust beneficiaries.

Finally, if there is acrimony among the beneficiaries or towards the successor trustee, the trustee may choose instead to prepare a formal accounting of his or her actions as trustee, and seek court approval of those actions and of your proposed distribution scheme. If you have properly disclosed your actions and a beneficiary does not object, the court proceedings will typically bar the beneficiary from later complaining about the administration of the trust. If the trustee chooses not to obtain court approval, a beneficiary generally has three years to object to the trustee’s administration of the trust after the close of the trust’s administration.

Conclusion

The trust administration process is often complicated and confusing, and can seem overwhelming at times. The process is sometimes even further complicated by emotions and conflicts that arise among the trust beneficiaries or towards the successor trustee as a result of family dynamics and the grieving process. If not properly dealt with, these conflicts often play out in court in protracted and expensive trust litigation. We help trustees avoid this result by providing competent and capable assistance throughout the trust administration process.

If you would like further information regarding an estate that requires ‘trust administration,’ please contact us to schedule a complimentary consultation.