How To Administer A Trust In California - Trust Administration Checklist

Administering a trust can be a difficult proposition, especially in California where certain legal precedents must be adhered too and followed. Whether you are handling your own family's trust or the appointed trustee for a loved ones trust, it is absolutely essential to understand all the steps involved to avoid legal missteps. These pitfalls during a trust administration can lead to potential disputes, financial penalties and potential liability for the trustee. This guide is intended to help you with the complexities of administering a trust thereby fulfilling your duties whilst adhering to California law.

What Is Trust Administration?

Trust administration is the process of managing and distributing the assets of a trust according to the terms in the trust document, as well as in compliance with California and state laws. The trustee is legally responsible for making sure that the wishes of the trust creator (the "grantor" or "settlor") are carried out properly after their passing or incapacity. 

In California, trust administration involves numerous legal obligations, including notifying their beneficiaries, managing assets, paying debts and taxes, and eventually distributing the remaining assets to the beneficiaries. The trustee must carry out these duties with honesty, loyalty, and diligence. Without a proper understanding of these responsibilities, the trustee may unintentionally expose themselves to legal discourse.

Essential Trust Administration Checklist for California

In order to simplify the process of administering a trust in California, we have compiled a detailed checklist of essential steps. This checklist is designed to help you understand your responsibilities and ensure you comply with California’s trust administration requirements.

1. Gather Necessary Documents

• The first step in trust administration is to gather all necessary documents. These may include:
• The original trust document and any amendments that may have been made.
• The death certificate of the creator
• Financial records (e.g., bank statements, property deeds, tax returns).
• Insurance policies and investment information.
• Having all the necessary paperwork is critical, as it allows you to properly assess the trust’s assets and obligations.

2. Issue Notices to Beneficiaries

California Probate Code Section 16061.7 dictates that the trustee is required to notify all beneficiaries and heirs within 60 days of the trust creator's death. This notice must include information about the trustee's role, the existence of the trust, and the rights of the beneficiaries. Beneficiaries have the right to request a copy of the trust document and can contest the trust within a specific timeframe.

Failure to issue these notices in a timely manner could lead to legal issues and delays in the administration process.

3. Issue Notices to Creditors

California law also requires the trustee to notify all known creditors of the deceased’s death. This allows creditors to make claims against the trust’s assets. In most cases, the trustee must publish a notice in a local newspaper to alert unknown creditors. 

By properly notifying creditors and allowing them time to file claims, you can protect the trust from future disputes over unpaid debts. Generally, creditors have four months from the date of the notice to submit their claims against the trust.

4. File Tax Returns

Trusts may have tax obligations at both the state and federal levels. The trustee must make sure that all outstanding tax returns for the deceased are filed, and that any taxes owed are paid from the trust’s assets. 

It’s advisable to consult with a tax professional to ensure compliance, as the IRS and California Franchise Tax Board impose severe penalties for late filings or any inaccuracy. 

5. Trust Accounting

One of the trustee’s key duties is to provide a full accounting to the beneficiaries. This involves creating detailed reports and records of all income, expenses, distributions, and transactions related to the trust. Beneficiaries have a right to review these accounts, this ensures clarity and accountability.

Proper trust accounting can prevent disputes by demonstrating that the trustee has acted in the beneficiaries' best interests. California Probate Code Section 16062 outlines the requirements for trust accounting, so it’s crucial to follow these guidelines. 

6. Keep All Records Safe

Throughout the process of trust administration, it’s essential to maintain organised and accurate records of all activities, communications, and transactions. This includes copies of notices, tax returns, receipts, and statements. 

7. Distribute Assets

Once all debts, taxes, and expenses have been paid, the trustee can proceed with distributing the remaining assets to the beneficiaries. Before making distributions, ensure that you’ve thoroughly reviewed the trust’s terms and consulted with legal or tax professionals if required. 

Distribution can be complex, particularly if the trust includes illiquid assets like real estate or if beneficiaries have differing entitlements. By following the trust's instructions precisely, you can avoid potential conflicts among beneficiaries and adhere to the deceased’s final wishes.

8. Close the Trust

After all assets have been distributed, taxes paid, and administrative tasks completed, the trustee can formally close the trust. This may involve preparing a final accounting and obtaining signed receipts from beneficiaries acknowledging they have received their distributions. 

Closing the trust properly is essential to releasing the trustee from their ongoing legal obligations. Once the trust is closed, the trustee’s responsibilities are considered complete.