TRUST ADMINISTRATION

Published on: April 11, 2011

Taxes in Probate and Trust Administration

As the successor trustee of a trust, executor of a will, or the administrator of an intestate estate (ie. no will or trust), one of your duties will be to pay all taxes due the federal government and the state of California.

Personal Income Tax Returns Once someone has died, a personal income tax return will have to be prepared and filed for the year of the decedent’s death. Income received by the decedent from January 1 until the date of death will have to be reported. If the estate receives income however, after the date of death, that will be reported on the estate tax return. Deductions for medical expenses of the decedent can be taken for one year after the date of death, to take into consideration expenses of a last illness. All other deductions, such as for mortgage interest, property taxes, etc. must have been expenses incurred prior to the date of death.

Fiduciary Tax Return The estate income tax return, call a fiduciary tax return, is filed annually as long as the estate is open. Dividends, interest, capital gains, and rents are all reported on this return. Deductions can be taken for mortgage interest the estate pays on real property and legal and administrative fees. This return, unlike the personal return, can be filed on a fiscal year basis. The duty to file a fiduciary return exists as long as the trustee, executor, or administrator is administering the estate. The final fiduciary return can be filed when the estate is in a position to be closed and final distributions made to beneficiaries.

Published on: March 11, 2011

Where Do You Open a Probate Estate or Administer a Trust?

by Scott C. Soady

A family member has died and you have to open a probate estate (if he died with a will or with no estate plan) or administer the decedent’s trust (if he had created a revocable living trust). In what county do you open the estate?

The county where an estate is handled is the county where the decedent was domiciled. Domicile is the permanent residence of an individual. In most cases, it is clear where the decedent was domiciled but in a few instances it may not be so clear.

If a decedent died in a hospital while on vacation, from accident, surgery, or illness, his domicile is still where he lived permanently, so if that is San Diego county, then the San Diego Probate Court would be where the will is admitted to probate or San Diego would be where the trust is administered. On the other hand, what if the decedent decided to move to another county to live with relatives or to live in an assisted living facility? Then domicile has to be determined by looking at such factors as where the decedent owned property; where was the residence of the decedent; where did the decedent receive mail, where was the decedent registered to vote; in what state was the decedent’s driver’s license issued. These factors may lead a court to conclude that the intent of the decedent was to change his domicile to another county.

Published on: February 28, 2011

When to Get Help With Trust Administration

by Scott C. Soady

If you are the Successor Trustee of a trust, you have a job with a lot of responsibility. You need to give notice to the trust beneficiaries, inventory and appraise the the trust assets, possibly create sub-trusts, prepare an accounting, file taxes, and make distributions. Administering a trust can be complicated and confusing for the lay person. It involves attention to detail and adherence to certain requirements of the Probate Court.

Here are some issues that may make you rethink doing trust administration by yourself:

1. The beneficiaries request an accounting. Beneficiaries are entitled to an accounting of the trust assets. They can agree to waive an accounting but should any of the beneficiaries request one, it is your obligation as the trustee to provide one. A complicated accounting often involves hiring an accountant to assist you and it may be a good idea to retain an attorney as well.

Published on: February 22, 2011

Avoid Being a Victim of Fiduciary Abuse

by Scott C. Soady

A fiduciary is an individual who acts in a position of trust such as acting as a guardian of estates,conservator of estates, personal representative of estates, or as an agent under powers of attorney.

A fiduciary as a trustee of a trust has the responsibility of administering the trust as set forth in the trust document, including safeguarding the trust assets, investing assets, accounting to the beneficiaries, and distributing assets as the trust document provides.

A fiduciary can also act as a conservator of an estate of the conservatee, where they are responsible for protecting and managing the conservatee’s asset, receiving income, paying bills, and filing tax returns. The duties of a fiduciary acting under a power of attorney are similar. All are positions which require a high degree of honesty and integrity,

Published on: February 16, 2011

Choosing a Private Professional Fiduciary as Your Successor Trustee

by Scott C. Soady

Acting as a trustee is a very important job and choosing your trustee can be a difficult decision. In addition to this person handling your estate upon your death, you also have to think about the possibility that this individual may have to take over the management of your affairs if you become incapacitated.

Many people choose an adult child or other family member to be the successor trustee of their trust. But there may be some valid reasons to choose an independent third party to act as your trustee during your lifetime or after your death. Some people do not have children or close relatives or friends they can name to serve as the trustee of their trust. Some people have children or relatives but they do not want to burden their family members with the job. Maybe their children live in another state or have busy lives with their jobs and family. Some people may not want to name any of their children for fear it will jeopardize the relationship between siblings. So what are some other options for your choice of a trustee?

1. Corporate Fiduciaries. Corporate fiduciaries can be banks, trust companies, or trust departments. They are insured and closely monitored by federal and state regulators. The down side may be that some of these corporate fiduciaries have a minimum value of an estate which they will accept. Their fees may be higher than other types of fiduciaries and some beneficiaries feel the service is impersonal.

Published on: February 12, 2011

Asset Valuation in Trust Administration

by Scott C. Soady

At Scott C. Soady, A Professional Corporation, many of our cases are trust administration. When an individual has died with a trust, the successor trustee has to inventory all of the assets and value them before they are distributed to the named beneficiaries. Asset valuation can take some time to accomplish and may require specialized appraisers to assist. The date usually used for valuation purposes is the date of death.

A distinction needs to be made between assets which are trust assets and assets which may not be trust assets but nevertheless were owned by the decedent and therefore also need to be valued .How are the various types of assets valued?

Real property is valued by a real estate appraiser who provides a written report describing the property, its value on the date of death, and providing comparable sales which were used to determine value. Commercial property such as apartments, office buildings, farms, and ranches are appraised by real estate agents or appraisers who specialize in that type of property. Crops, animals, and equipment are valued separately from the real property.

Published on: January 12, 2011

Criminal Charges for Embezzling From a Trust

by Scott C. Soady

Being a trustee of a trust is an important job and requires a high degree of honesty, trustworthiness, and ethics. Trustees are fiduciaries and have a number of duties under the California Probate Code. Trustees have the duty of loyalty (Probate Code 16002), the duty to deal impartially with the beneficiaries (Probate Code 16003), and the duty to avoid conflict of interest and not self deal (Probate Code 16004). Any breach of these duties is a breach of a trustee’s fiduciary duties. There are remedies in the Probate Court when there has been a wrongdoing by the trustee and there can also be criminal charges filed against a trustee who does not properly do his job.

For example, a man in northern California who embezzled more than $100,000 from his grandmother’s trust was recently charged withe first degree embezzlement. After becoming the trustee of his grandmother’s trust, he started taking cash from her CD’s and depositing the money in two of his business accounts. Between 2003 and 2006, he allegedly withdraw $108,000, leaving his grandmother with only $6,000 forcing her to move from her home because her grandson had not paid the mortgage. The grandson claimed that he had to withdraw the money to support his wife and 6 kids.

The choice of a trustee is so important. This individual may be handling your trust when you are still alive if you become incapacitated or decide you just want assistance at some point. When you consult with Scott C. Soady, A Professional Corporation about a trust, we can assist you in narrowing the choices for a successor trustee and put safeguards in your trust to reduce the risk of trustees helping themselves to the trust assets. We also handle trust litigation and elder abuse cases where a trustee has taken money from a trust and therefore needs to be removed from the position and compelled to repay the money to the trust. We are happy to help with any of these “trustee” issues.

Published on: January 4, 2011

How the Lack of an Estate Plan Can Affect Your Loved Ones

by Scott C. Soady

If you do not have a will, or better yet, a trust, your estate will be distributed according to the laws of “intestacy” set forth in the Probate Code. There may be a difference between how your estate is distributed according to your wishes and how it will be distributed pursuant to the Probate Code. Here are some disadvantages of intestacy you might want to consider:

1. The Court chooses the individual who will distribute your estate. The Court will appoint someone called the administrator to manage your assets and distribute them to your heirs at law. Maybe the person appointed is the person you would have chosen anyway but maybe not. Maybe two or more individuals will apply to the Court to be named administrator causing discord in the family.

2. The process of probate takes a long time. When you die without a will or a trust, the probate process here in San Diego typically can take a year or longer. The administration of a trust usually progresses much faster. If there are issues that need court intervention, the trustee can petition the Court for assistance, but most trust administrations are handled without going to court.

Published on: November 24, 2010

Practical Advice for Successor Trusteees

by Scott C. Soady

After the death of a loved one, the individual named in the decedent’s trust who will administer the trust and distribute the trust assets is the successor trustee. A successor trustee has a number of fiduciary duties. Some of these duties are the duty of loyalty, duty to avoid conflicts of interest, and duty to preserve trust assets. These are just a few duties; there are many more however, this blog is not so much about the legal responsibilities and duties of a successor trustee but rather practical information to make trust administration go smoothly and avoid any difficulties with the beneficiaries.

One thing that is so important is to keep impeccable records. Make sure you maintain accurate records and document all transactions. Keep all receipts. Detailed records are imiportant because it may become necessary to prepare an accounting of all the deposits and income going into the trust and all the disbursements and distributions.

Keeping beneficiaries informed is also really important. As a successor trustee, you do have a duty to keep beneficiaries informed, but even for items that are not subject to this duty, it is a good ideal to keep in touch with the beneficiaries, answer any questions they have, and maintain a friendly relationship. Many cases of trust litigation arise because beneficiaries become disgruntled about not being kept informed or not feeling like they are “in the loop.”

Published on: October 24, 2010

Who Pays a Decedent’s Debts?

by Scott C. Soady

Many people ask whether as family members they can be responsible for a loved one’s debts. Often debts can rapidly accumulate especially if a decedent has had a long illness.

If the decedent left an estate that is solvent, the estate will pay the expenses of a last illness and any debt. The personal representative (trustee, executor, or administrator) will be the one to pay off the debts from the assets of the estate before any distributions are made to beneficiaries. A solvent estate is one where the value of the assets is more than the debts. The personal representative if the decedent had a trust will be the successor trustee. The personal representative if the decedent had a will is the executor. If the decedent had no will or trust, the personal representative will be the administrator.

If the estate is not solvent, it means there are not sufficient assets to pay all the debts of the decedent. If there are sufficient assets to pay some of the bills, the bills will be paid in a certain order. That order of payment is as follows: