Articles Posted in Trust formation and amendment

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.

Typical situation.  An elderly mom with two adult children, Sally & John, passes away with a house full of nice personal belongings (furniture, antiques, crystal and jewelry).  Sister Sally lives with mom or in the same town and brother John lives 500 miles away. When mom passes, Sally notifies John but it takes him a couple of days to get into town for the funeral.  Meanwhile, Sally picks through the personal belongings and takes for herself what she wants and doesn’t tell John about it.

What actually should be done but rarely happens.  A Upon a death, the law requires that the deceased person’s personal property as well as money and real property be inventoried and accounted for.  Whether it is a probate situation or a living trust situation (i.e. no probate because of there being a trust in place), somebody needs to pay immediate attention to the personal property within a day or two.  It is a sad fact of life that I and nearly all other estate attorneys have observed that personal property often disappears without any trace unless steps are taken to preserve it.  In the ideal situation, the entire house including the personal property is photographed immediately and then detailed lists are made, room by room, of what is there.  Then, a personal property appraiser is hired to make a detailed listing of everything and appraise the values.  Few people realize it, but there are professional appraisers.  One resource is the American Society of Appraisers which can be found at http://www.appraisers.org/Disciplines/Personal-Property

What can be done to recover missing personal property?  The short answer to this is that very little if anything can be done.  This is the classic case of once the horse is out of the barn the remedies are few an ineffective. Theoretically, as in the example above, brother John can file a probate court petition against sister Sally but it is up to John and John’s attorneys to prove that Sally took the items in question.  Unless there are photographs or written evidence created very close to the mom’s passing, John can’t produce evidence to prove (a) what the missing items were and/or (b) that mom still owned them at her death or (c) that Sally took the missing items.  If John files against Sally she will typically deny any knowledge of anything.  If it were money missing, then bank records can be subpoenaed to prove what money was taken and whose account it went into.  Not so with personal property, unless the items are of significant value or are put up for sale in something observable such as Craig’s list.  Because mom’s personal property is not typically on people’s minds in mom’s last days, not a lot of care or record keeping is done to keep track of what there is.

Let’s Subtract the Money Johnny Got From His Share of the Estate

TYPICAL SITUATION

A father dies without a will leaving an estate of $100,000.  Under the laws of intestate succession which apply because there is no will, his 4 children are to receive equal shares of the estate which would be $25,000 each. However, during the 10 years leading up to his death, the father had transferred $20,000 cash in total to his son Johnny thus creating a pre-death transfer.   There was no documentation stating whether the $20,000 was a gift or a loan or an advancement against Johnny share of the father’s estate.

Can I give everything to the “love of my life” and keep it secret?

NO DISCLOSURE TO OMITTED HEIRS?

Up until 1997 a person could legally change his or her estate plan and the people previously benefited did not have any legal way to find out what the situation was. Before the law was changed to require disclosure as it is now, the state legislature committee reviewing the proposed legislation was presented with a case of a 90-year-old man who met the “love of his life” on a bar stool and married her three months later.

How Does the Successor Trustee Handle the Bills and Debts of the Deceased Trustor?

LIVING TRUST ADMINISTRATION

Successor Trustee paying trustor debtsIf there is a living trust and all of the deceased person’s assets have been placed into the living trust prior to death, there is no need for a probate court administration. Creditor Rights? For probates, there are specific court-supervised formal steps required to notify creditors and for approval and rejection of creditor’s claims. The situation involving a trust is much less formal and the laws differ somewhat. The person who administers a living trust following the death of the trustors (the persons who created the trust) is known as the successor trustee.

WHY DID THE TRUSTEE PAY ALL THAT MONEY TO HIMSELF?

WHAT ARE TRUSTEE FEES?

A trust is typically established by a document known as a declaration of trust will which is a document with instructions for how the trust assets are to be handled. The declaration of trust also identifies the trust creators, known as trustors, the beneficiaries who will be receiving money and benefits out of the trust and the trustee. The trustee is the person or institution responsible for administering the trust, writing the checks, paying the bills, etc. The trustees fees are what is paid to the trustee for doing the work of administering the trust.

Image of elderly man with adult son walking on beach

A Trust Can Be Set Aside and Disregarded if a Court Finds that a Trust Maker Lacked Capacity

PRESUMPTION OF CAPACITY

California law presumes that everyone has the mental capacity to make a trust.  Thus, if someone challenges a trust in court for lack of mental capacity it is up to the challenger to prove lack of capacity with sufficient evidence.

How did that kid get so much money to blow!

18 is the age of majority

When a child turns 18 years he or she is considered to be an adult under California law. In legal terms, children under age 18 are called “minors” and when they reach age 18 they are called “adults”. Minors and adults are treated differently as far as inheritance rights are concerned. Minors still have rights to inherit but any inheritance which comes to them is subject to certain legal controls because the law presumes that minors are not capable of handling money or property as well as adults.

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