California Living Trust: Inheritance by Other Heirs

A single individual who establishes a living trust and transfers his or her assets into it is generally named as the sole trustee. When that person dies, the successor trustee(s) named in the trust document must then take all steps required by law to administer the trust, as explained in the Steps to Inherit a Living Trust section of this website. If no successor trustee is named, or the person(s) named cannot serve, then a petition must be filed with the California Superior Court asking the Court to name a new trustee.

In most cases, at the close of administration, and after a trust income tax return and any estate tax return has been filed, the trust assets will be distributed to the beneficiaries. No additional tax returns or accountings for the trust will need to be prepared after that.

The steps followed after the death of a surviving spouse of a husband-and-wife living trust are similar to those after a single person's death. The main difference is that there are usually two trusts, and sometimes a third trust, to distribute. These trusts were created during the administration of the original living trust after the first spouse died. (For more information about the creation of these trusts, please see the Surviving Spouse of Living Trust section of this website.)

     a. Irrevocable Trust of Previously Deceased Spouse

The irrevocable trust which was created from the assets of the first spouse to die typically contains the lesser of the maximum amount of assets exempt from estate tax when that spouse died, or all the assets the first spouse owned. If so, it is not subject to federal estate tax. In most cases, the second spouse was the successor trustee, and so a new successor trustee needs to be appointed. At the end of the administration of that trust, its assets can be distributed according to the terms of the trust or as the various beneficiaries may otherwise agree.

     b. Revocable Living Trust of Second Spouse, now Deceased

The revocable living trust which belonged to the second spouse contains the second spouse's assets.

If this second trust is to continue in whole or part as a trust, then the trustee or trustees need to re-register assets in the trustees names, keep records, invest funds subject to the provisions in the trust document and California law, make sure annual trust income tax returns are filed, and provide the trust beneficiary or beneficiaries with an annual accounting. Otherwise, at the end of the administration of the second trust, its assets can be sold or distributed according to the terms of the trust or as the various beneficiaries may otherwise agree.

     c. Qualified Terminable Interest Trust

A third trust, called a "qualified terminable interest trust," may also exist. If so, it typically will contain the assets owned by the first spouse at death which exceeded the value of the federal estate tax exemption. Generally, the second spouse will have been the sole beneficiary.

     d. Filing Estate Tax Return for Second Spouse

A federal estate tax return must be filed if the value of all the assets belonging to the second spouse exceed the federal estate tax exemption. This includes the assets of the revocable living trust, the assets in the qualified terminable interest trust, and any assets not in a trust. The value of the assets is their fair market value on the date the second spouse died.

     e. Property Tax Reassessment

Property which passes to the children of the deceased, their spouses, or the child of a deceased spouse is exempt from property tax reassessment. Property that passes to other persons is not exempt from reassessment.

Again, it is especially worthwhile to hire an experienced attorney to make sure each of the required legal steps is followed when multiple trusts exist after the second of two spouses died, or when a single person dies leaving substantial assets to be distributed to multiple beneficiaries. A skilled trust administration attorney can ensure that the legal terms of the trust(s) are followed to the letter, that title to trust assets is passed properly, that the successor trustee(s) does not become liable to the the creditors of the deceased or beneficiaries of the deceased, and that the beneficiaries do not end up battling the IRS collection department over unpaid estate taxes. The experienced trust administration attorneys of San Diego Law Firm are able to properly handle every aspect of trust administration on your behalf; please just call us for an appointment, 619-794-0243.

Click links below for more living trust administration information:

Steps to Inherit a Living Trust

Surviving Spouse of Living Trust

How to Contact Us

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