Probate and Trust administration is a challenging task. Complex problems arising from the interplay among the will or trust instrument, the probate code, and tax laws must be resolved by the trustee and the trustee’s professional advisors.
The death of the deceased spouse often requires the executor or trustee to create order out of uncertainty and ambiguity. The surviving spouse may consider much of the information required to be obtained as an unacceptable invasion of privacy. Unfortunately, the requirements of law and common sense compel obtaining this information.
In trust administration the typical nonprofessional trustee may be the surviving spouse, an adult child, a relative or family friend–someone other than an attorney or an accountant (or other professional) who specializes in estate planning and trust administration. Almost all nonprofessional trustees hire an attorney, usually but not necessarily the attorney who drafted the trust instrument, to assist with the trust administration process. When a California married couple together has established a family revocable living trust, the trust administration process begins upon the death of the first spouse to die. Many trusts provide for the division of the trust into subtrusts upon the death of the first spouse if there are children of a prior marriage(s) or life estate provisions for the primary residence. Additionally, the portability election must be addressed after the first spouse to die.
After the death of the deceased spouse, the trust becomes irrevocable. A new tax identification number is required for the trust and notices are required for the beneficiaries. Often, a trust will call for the establishment of subtrusts: the Survivor’s Trust, the Bypass Trust, and the Marital Deduction Trust. The Survivor’s Trust will contain the surviving Settlor’s half of the community property, as well as any separate property owned by the surviving spouse. The Survivor’s Trust remains entirely revocable by the surviving spouse, and the survivor retains unrestricted control over the property in that trust. The Bypass Trust is intended to be funded with the applicable exclusion amount, the amount that the deceased settlor may transfer without incurring estate or gift tax. The Bypass Trust will not be taxed on the death of the surviving spouse. The Marital Deduction Trust is intended to qualify for the unlimited marital deduction from estate taxes. This Trust is often called a “QTIP” Trust. Choosing which assets to use to fund the several subtrusts is one of the major challenges faced by the nonprofessional trustee.