Transferring assets from a trust (part 1)
Ask the LDA
December 4, 2021
So the question comes up, "How do I transfer assets out of a trust to the beneficiaries?"
One example might be Debbie sets up a living trust for her own benefit with herself as the initial trustee. Debbie names her daughter Carol as the successor trustee, and names her grandchildren as the ultimate beneficiaries of the trust. Debbie would then formally transfer items of property to the trust by putting her name as the trustee of the trust on the relevant deeds, accounts and title slips. At Debbie's death, Carol acts as the successor trustee to follow trust administration procedures and ultimately transfers the remaining assets of the trust to Debbie's grandchildren as beneficiaries. No probate is required to transfer trust assets.
Settling the estate of a person who had a living trust can be much easier than completing a probate proceeding, which is one of the main reasons that people set up living trusts. However, administering a trust can also be quite complicated, depending on the assets involved, the specific terms of the trust, and other factors unique to the particular trust estate. While the trust administration process does not require court oversight, a successor trustee has obligations established by state law and the trust instrument.
After the death of the settlor of the living trust, the successor trustee steps in and takes charge of the assets. In general, the trustee must give appropriate notifications, pay final bills and taxes, account to beneficiaries, and then distribute the remaining trust property according to the instructions in the trust. After the trust property has been distributed and final tax returns filed, the trust ends. No formal termination document is required.
Some steps should always be taken on the death of any individual. If the trustee is not the sole beneficiary, a trustee takes on serious obligations that can result in personal liability for failing to administer the trust properly.
If the decedent had a living trust, the trustee should consult resources specific for trust administration and may want to seek advice from an attorney if the trust is complicated.
When the settlor of a revocable trust dies, the trust becomes "irrevocable," meaning that the terms can no longer be changed. The trustee must notify all the trust beneficiaries and heirs of the settlor of the existence of the trust and of the right to receive a copy of the terms of the trust. An "heir" is any person, including the surviving spouse or registered domestic partner, who would be entitled to inherit property if the deceased person had no will.
The notice must provide certain information about the administration of the trust, such as contact information for the trustee and the place of trust administration. It must also inform the recipients of a time period set by law to contest the trust and use specific words printed in at least 10-point bold type.
Because the date the trustee serves the notice on the heir or beneficiary triggers the start of the time period to contest the trust, the trustee should have proof of the mailing.
Even after the initial notification, a trustee has ongoing responsibilities to keep beneficiaries reasonably informed of the trust and its administration. This includes providing accountings and responding to reasonable requests from a beneficiary for information related to the beneficiary's interest.
A trustee who does not make a good faith effort to comply with notice requirements and other responsibilities can be held liable for damages, including attorneys' fees and costs.
Diana Wade is a Legal Document Assistant. She can be reached at (661) 821-0494 or firstname.lastname@example.org. Diana is not an attorney; she can only provide self-help services at your specific direction. Kern County LDA #185, ex 4/11/23.