Articles Posted in Administration of trusts and probate estates


(Each step of administration can create serious pitfalls and problems if ignored)

     1. Study of the trust documents to determine specific instructions i.e. what to do on death of first or second spouse as the case may be.


By: David L. Crockett, Attorney, CPA

Types of Accounting:  Trust accounting may be (1) Informal; (2) Formal (non-court) according to Probate Code §16063 format; or (3) Court accounting according to Probate Code §1060 et. seq. requirements. The trust accounting is to be prepared by the Trustee and/or under his/her authorization.


By: David L. Crockett, Attorney, CPA

Trust terminology basics.     A trust is created by a written  document  known as a declaration of trust, and is then funded by transfer of money  into  trust bank accounts and/or deeding or transferring of properties to the  trust.   The creator of the trust is known as the “Trustor” or the “Settlor.”  Trusts are usually prepared by attorneys because each trust is custom for the situation and there are many types of trusts.  The persons who are to receive money and property out of the trust are known as the “Beneficiaries.  The person or institution that takes care of the money and property  of  the  trust is the “trustee”.  The trustee is bound by law to follow the  directions contained in  the declaration of  trust.  Trusts are not supervised by the court system and are not registered with the state government upon formation.  Trusts are essentially private contracts between the trustors, the trustees and the beneficiaries.  There are laws written into the California probate code that control the governance of trust matters.

AN APPRAISAL IS NEEDED UPON DEATH OF A PROPERTY OWNER.  A routine part of trust administration or probate administration is to obtain an appraisal of each property owned.  This is for income tax reasons.  Because the income tax basis is increased “stepped up” upon death to fair market value an appraisal is needed to prove the exact date of death value.  A licensed appraiser is needed to do this.  A realtor’s letter of value opinion is not sufficient.  There are licensed residential appraisers and licensed commercial property appraisers.  Aside from tax purposes, an appraisal is also useful to determine actual value to help to deciding what to do with a property.

INCOME TAX “BASIS” CONCEPT. Under our system of federal and state income tax, if the property is sold before death for more than what was pay for it then there is a capital gain. There are special rates which apply to capital gains depending  upon one’s tax bracket. To compute capital gains, you subtract the income tax basis of the property from the net selling price. The income tax “basis” is what was paid for the property in the first place minus any depreciation and adding any expenditures for capital improvements.

DEATH AFFECTS THE BASIS. The basis of property acquired from a deceased person’s probate estate or trust is generally it’s “fair market value” on the date of the decedent’s death. Thus, the children who inherit a property from their parents through a trust or through a probate proceeding will have a date of death income tax basis. This is known as the step-up in basis at death. An appraisal is necessary to legally prove the date of death value.

SORT OUT WHAT NEEDS TO BE FILED.  A routine part of trust administration or probate administration is for the Probate Executor or the Successor Trustee of a living trust to sort out the income tax situation.  First, you have to determine if the individual income tax return filings of the deceased are up to date.  Individual tax returns, form 1040 federal and form 540 state are due each April 15 for the previous year.  Thus, 2016 returns were due on April 15, 2017 and so on.  It is the responsibility of the Executor or Successor Trustee to make sure the proper returns are filed.

INDIVIDUAL RETURNS FOR THE YEAR OF DEATH.   Individual income tax returns are due for the year in which a person dies, even if they do not live until the end of the year.  Thus, if a person dies on October 10, 2016 for example, the normal individual returns for 2016 would have been due April 15, 2017.  The due date can be extended 6 months by filing extension request forms by April 15.  The returns filed should check the box “final return” and state the date of death of the deceased.  If you forget to check the box of it being a final return, then the IRS will keep sending you letters in later years asking for returns to be filed.

FIDUCIARY RETURNS FOR THE YEAR OF DEATH.   In addition to the individual tax returns, fiduciary income tax returns, forms 1041 federal and 541 for the state are due if the estate or trust has income received after the death of the person involved.  (If the income is below the filing limit for that year the fiduciary returns may not be due but there may be reasons to file them anyway so the trust has a complete filing history.)  Thus, in the above example of a person who died on October 10, 2016, there would need to be fiduciary tax returns filed to report the income received from October 10 until December 31, 2016.  Those returns would be due April 15, 2017 but can be extended 5 months until September 15 if extension application forms are filed by April 15.  This situation typically occurs where the trust or estate has income earning assets such as bank accounts or stock market accounts or rental properties.