Property Transfers at Death and How to Plan for Your Old Age
A trust is when one person (trustee) holds title to property for the benefit of another person (the beneficiary).
A person called the settlor (or trustor) creates the trust and puts the property in the trust.
The settlor, trustee, and beneficiary can be different people. But, one single person could be the settlor, trustee and beneficiary.
For example, one person may create a trust and put property in it, make himself the trustee, and use the property for his own benefit. In that case he would be the settlor, trustee, and beneficiary all at the same time.
The trustee is the person (or people) who holds legal title to the property that is in the trust. The trustee’s job is to manage the property in the trust for the benefit of the beneficiaries in the way the settlor has asked.
A trustee has all the powers listed in the trust document, unless they conflict with California law or unless a court order says otherwise. The trustee must collect, preserve and protect the trust assets.
To do this, the trustee can:
- make reasonable repairs,
- insure the property,
- sell assets,
- make prudent investments,
- pay certain administrative bills and expenses, and
- make distributions and payments to the beneficiaries according to the trust document.
The law says the trustee must:
- Do what the trust document says as long as it is legal;
- Do only things that benefit the beneficiaries;
- Not favor one beneficiary over another;
- Avoid conflicts of interest with the beneficiaries
- Never use trust property or the trustee's powers for personal benefit, unless the trust authorizes it;
- Keep trust property separate from property owned by anyone else;
- Not delegate to others anything they can reasonably do themselves. If the trustee must delegate some duties, s/he must supervise what the delegated person does;
- Administer and invest the assets of the trust with care and skill to protect the trust;
- Diversify investments unless it would not be a good idea to do so;
- Keep detailed records and give periodic reports to the beneficiaries as required by California law. See Probate Code Sections 16060 - 16064 and Sections 1060 -1064);
- Distribute the income as required by Probate Code Sections 16320 -16375.
When the settlor dies, the trustee has other duties:
Notice to beneficiaries and heirs: If the trust is irrevocable when the settlor dies, the trustee has 60 days after becoming trustee or 60 days after the settlor's death, whichever happens later, to give written notice to all beneficiaries of the trust and to each heir of the decedent. The notice must provide this information:
- The settlor's name and the date the trust was signed;
- The name, address and telephone number of each trustee of the trust;
- The address where the administration of the trust will take place;
- Any information the trust document asks for;
- That beneficiaries can ask for a complete copy of the trust; and
- That beneficiaries have a deadline of 120 days after getting notice to start a legal action to object to the trust, or 60 days after a copy of the trust is mailed or served upon the recipient, whichever is later.
For more information, see California Probate Code Section 16061.7.
Notice to Assessor's Office: If the trust property includes real estate in California, the trustee must give written notice to the Assessor's Office of the county where each parcel of real estate is.
For more information, see California Revenue and Taxation Code Section 480(b).
Inventory and appraisal: If there is no court-appointed executor for the estate of the deceased settlor, in most case the trustee must make an inventory and appraisal of all the settlor's assets as of the date of death (whether or not the assets were in the trust). The trustee does this to see if federal and state estate tax returns need to be filed. If they do, the trustee will apply to the Internal Revenue Service for new tax ID numbers for the trusts and make sure the returns get filed and any taxes owed get paid within 9 months of the settlor's death.
If the settlor was acting as trustee of his or her own trust, the new trustee (called a “successor trustee”) will also sign an Acceptance of Trusteeship.
Follow trust instructions: The trustee also must do anything the trust instructs. Often, the trust says the successor trustee will take care of paying for the settlor's funeral expenses, the settlor's outstanding debts (like, recent medical expenses and credit card bills), and then distribute what is left to the beneficiaries of the trust.
Sometimes, the beneficiaries have the right to get most or all their inheritance through the trust within days or weeks of the settlor's death. In other cases, the trustee may delay distributing property to:
- Sell property to pay the settlor's final bills or taxes,
- Calculate the distribution required by the trust, or
- Determine if there will be other debts or taxes to pay at a later date.
Some trusts say the trustee cannot distribute the assets for a certain number of years, or until the death of someone else. In these cases, the trustee is responsible for investing the assets of the trust, perhaps making periodic distributions to the beneficiaries, until all assets of the trust are distributed to the beneficiaries.
A beneficiary of a trust is a person who by the terms of the trust has the current or future right to have the trustee pay out cash or other trust property to him or her. He or she is one of the people for whom the trust was established.
Unless the trust is revocable by someone else (like a revocable living trust while the settlor is still alive), the beneficiary has the following rights, in addition to any rights listed in the trust:
- The right to receive notice of the existence of the trust.
- The right to receive a copy of the trust.
- The right to receive trust accountings and information about the beneficiary's interests in the trust.
- The right to enforce the terms of the trust and to hold the trustee accountable for any wrongful acts or omissions that affect that beneficiary's interests.
Unless it has been legally revoked, a trust usually ends only when the trust document says it will end. Trusts usually end when the settlor dies or when one of the beneficiaries dies. But, sometimes a trust ends after a certain period of time or after a certain event takes place, like when a beneficiary gets married or reaches a certain age. But there are other reasons a trust can end. Here are some:
- The term of the trust expires,
- The trust purpose is fulfilled,
- The trust purpose becomes illegal,
- The trust purpose becomes impossible to fulfill, or
- The trust is revoked.
If the trust ends, the trustee will continue to act as trustee until s/he finishes up the affairs of the trust.
Unless the settlor made the trust irrevocable when s/he created the trust, the settlor can cancel or change the trust. Even if a trust is irrevocable, it is possible that it can be changed in one of the following situations:
The law states that if all beneficiaries consent, they can petition the Court to change or end the trust.
The Court will consider:
- if the trust must continue in order to carry out the purpose of the trust
- if the reason for changing or ending the trust outweighs the interest in carrying out the purpose of the trust
If the settlor and all beneficiaries consent
The law says if the settlor and all beneficiaries consent, they can change or end the trust.
If any beneficiary does not consent to change or end the trust
the other beneficiaries, with the consent of the settlor, can petition the Court to partially change or end the trust as long as the interests of the beneficiaries who do not consent are not seriously affected.
If the trust has uneconomically low principal
If the Court decides it is costing more to administer the trust than the trust is worth, the beneficiary or trustee can ask the Court to end or change the trust, or appoint a new trustee.
If the trust principal is worth $20,000 or less, the trustee can end the trust.
Change or end the trust if circumstances change
The law says the Court may change or end a trust if circumstances have changed and continuing the trust would defeat or weaken the trust.
The trustee must keep the beneficiaries informed about the trust and its administration. If you make a reasonable request for information, the trustee must give you a report about the assets, liabilities, receipts and disbursements of the trust, what the trustee has done, money paid to the trustee, any agents hired by the trustee, their relationship to the trustee and any pay they received, and information about your interest, including a copy of the trust.
If you waived (gave up) your right to information, you can withdraw your waiver in writing and get the most recent report and all future reports. If it has been 60 days or more since your written request for a report, or 6 months since your oral request, and the trustee hasn't given you a report, you can file a petition to ask the Court to make the trustee file a report. Even if the trust itself says the trustee does not have to give you a report, the Court can make the trustee give you a report if you show that the trustee may have violated his/her duties.
If the trust is revocable, or if you waived in writing your right to a report, or if the trustee and the beneficiary are the same person, the trustee does not have to provide information unless the trust document says s/he must.
The Court can remove a trustee and make the trustee pay the beneficiaries for any loss to the trust. Sometimes the Court will remove the trustee or suspend the trustee’s powers while the case is pending if there is reason to believe the beneficiaries’ interests are at risk.
Some trust documents say the trustee will be liable only for willful misconduct or gross negligence. But, California law is more strict, and the Court can remove a trustee for any of the following reasons:
- Breach of trust;
- Trustee has more debts than assets or otherwise unfit to act as trustee;
- The trust cannot be administered because of hostility or lack of cooperation between co-trustees;
- The trustee does not want to be the trustee;
- The trustee's payment is excessive;
- The law says some people must be disqualified from serving as a sole trustee.
The beneficiary has 3 years from the date of receiving the trustee’s report to ask the Court to remove the trustee.
Yes. If a trustee wants to resign, s/he can do so:
- As explained in the trust document;
- If the trust is revocable, by getting the person who has the power to revoke the trust to consent;
- If the trust is irrevocable, by consulting with all adult beneficiaries; or
- By getting a Court order after filing a petition asking the Court for permission to resign.
Unless the beneficiaries say they do not want one, the trustee must file an accounting of all trust transactions while he or she was acting as trustee.
If a trustee dies or resigns, is conserved or is declared “incompetent” by a court, or files for bankruptcy, then the trustee can no longer act as trustee and must be replaced.
Some trusts have 2 or more co-trustees and the trust may say that the remaining co-trustee will be the sole trustee, or may say how a new trustee will be appointed.
If the vacancy cannot be filled, then a trust company may agree to serve if all adult beneficiaries agree. If that fails, any person who has a financial stake in the trust or any person named as trustee can file a petition to have a trustee appointed.
Any beneficiary who is 14 years of age or older can nominate a trustee, even though a minor under the age of 18 is not legally qualified to serve as trustee.
The public guardian cannot be appointed as trustee of any trust unless the Court finds that no other qualified person is willing to act as trustee.
If you have legal access to the person's files and papers, look through them to see if there are any trust documents, or any references to a trust. Look for copies of deeds, bank or securities account statements that name a trust as the owner, or a Will that refers to a trust. Also look for papers that name an attorney, and call the attorney to see if he or she has any record of a trust.
You can also visit the County Recorder's Office or contact the County Assessor's Office to see the title on real estate owned by the person to see if it is held in the name of a trust. Click here for the Assessor's Office website: www.acgov.org/assessor/index.htm.
To know if someone’s house or other real property is in a trust, go to the County Recorder's office or contact the Public Service Unit of the County Assessor's Office at (510) 272-3787.
It is not easy to trace the ownership of bank accounts, brokerage accounts, and personal property. Only the owner has a right to get copies of statements from a bank or other institution.
If a settlor listed property on a schedule when they created the trust (showing their intent to put the property in the trust) but dies without changing the title to the property, the trustee can petition the Court to include the property as part of the trust.
For more information, read Probate Code Section 17200
Yes. But, first read the trust carefully and talk to a lawyer experienced with trusts. If you challenge a trust and lose, you may lose your right to receive property from the trust.
Here are common reasons to challenge a trust:
- You believe the settlor was pressured into creating or signing the trust.
- You think the settlor was not competent when s/he signed the trust.
- The person (other than the settler) who helped set up the trust will benefit from the trust.
If the trust document says that a beneficiary's share of the trust income or principal cannot be transferred (a spendthrift provision), you cannot collect money owed to you until the income or principal is actually paid to the beneficiary. But, you can petition the Court to order the trustee to pay you from the trust assets due to the beneficiary.
See Probate Code Section 15300, et seq.
If the settlor owes you money and the settlor has the power to revoke the trust in whole or in part, you can make a claim against the property during the settlor's lifetime.
In some cases, you can make a claim against the settlor for the maximum amount available to the settlor under the terms of the trust, up to all of the property contributed by the settlor to the trust.
See Probate Code Section 18200.
If the deceased settlor of a revocable trust owes you money, and there is not enough money in the probate estate to pay your claims, you must make a claim against the probate estate.
If you win, your claim will be paid from the property in the trust.
If no probate petition has been filed with the Court, and the trustee has not filed a Notice To Creditors with the court and published it, you can file your own petition to open a probate estate and file your claim in Probate Court.
If the trustee has filed and published a Notice to Creditors, and sent a copy of the Notice to creditors the trustee knows or should know about, you must file your claim with the court within 4 months after the publication of the Notice, or within 30 days after the Notice is mailed or personally delivered to you, whichever is later.
Also, mail a copy of your claim to the trustee. If the trustee rejects your claim, you will have to file a lawsuit against the trustee to get your money. There are time limits for you to file. See Probate Code Section 19255.
The trustee has the right to allow or reject your claim. After the claim filing period ends, the trustee can file a petition to ask the Court to allow a compromise, settle claims that have not been rejected, or to allocate the claims if two or more trusts may be liable for the claim.
If you do not file a claim during the claim filing period, or do not file an objection to the trustee's petition to approve claims, you will not be allowed to take any further action to collect the debt. The Court's order will be binding on all claimants and beneficiaries who had notice of the petition.
The law says that unless the trust is revocable, a trustee or beneficiary can petition the Court about the internal affairs of the trust or to ask if the trust exists.
Petitioning the Court is complicated. Talk to a qualified lawyer before filing a petition.
Your petition can ask the Court to do many things, including:
- Determine the validity of terms of the trust.
- Identify the beneficiaries and determine who gets property, and when they get it, if the trust does not specify that information.
- Settle the accounts and review the acts of the trustee.
- Tell the trustee to do something, like report about the trust or account to the beneficiary.
- Grant powers to the trustee.
- Determine or review a trustee’s pay.
- Appoint or remove a trustee or accept a trustee’s resignation.
- Make the trustee pay for losses to the trust or a beneficiary that are the trustee’s fault.
- Approve or direct a change in the trust, or end the trust.
- Approve or direct combining or dividing trusts.
- Change the trust to make a decedent's estate qualify for the charitable estate tax deduction under federal law.
- Authorize transfer of a trust or trust property to or from another or country.
- Direct transfer of a testamentary trust from one county to another.
- Approve removal of a testamentary trust from court supervision.
- Determine the reasonableness of payment for legal services.
You can petition the Court for other reasons, too. For more information read California Probate Code Section 17200.
The law says the trustee or any interested person can file a petition if:
- The trustee has or holds title to real or personal property, and another person makes a claim against all or some part of that property.
- Another person has or holds title to real or personal property and the trustee makes a claim against all or some part of that property.
- A creditor of the settlor of the trust makes a claim against the trust.