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Administration of Trust B
Obtaining a Federal Tax Identification
Number
File Trust Income Tax Returns
Create Certification of Trust B
File Real Property Change of Ownership
Statement
Change Title of Real Property
File a Preliminary Change of Ownership
Report
Re-Register the Assets in the Names
of the Beneficiaries
Record Keeping and Accounting
The surviving spouse is normally the beneficiary of irrevocable
Trust B as well as its trustee. When that person dies, the
trust is administered by someone designated to act as the trustee
or trustees.
Obtaining a Federal Tax Identification Number
When Trust B was created, a Tax Identification Number
had already been obtained. No new number is needed since
the existing one will continue to be used.
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File Trust Income Tax Returns
Any income received by the trust from January 1 through the
date of death of the surviving spouse is personal income for
the surviving spouse. Depending on how things are handled, any
income from the date of death through the end of the year is
either taxed to the parties who receive the trust's assets or
to the trust itself. Until the trust is terminated and its assets
completely distributed, both federal and California trust income
tax returns must be filed.
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Create Certification of Trust B
A certification of Trust B is permitted by California
law and consists of a typed statement that lists the current
trustee or trustees, the tax identification number of
the trust, the powers held by the trustee or trustees,
and other provisions of the trust that are applicable.
The paper is then signed by the trustee or trustees and
notarized. This certification is submitted to every financial
institution along with a certified copy of the death certificate
of the surviving spouse to transfer assets to the name
of the trustee or trustees of Trust B.
Assets in Trust B need to be registered in the name
of the successor trustee or trustees as shown in this
example: "Barbara M. Smith, Trustee of the John
and Ann Smith Living Trust dated September 1, 2003 -
Trust B."
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File Real Property Change of Ownership Statement
A special statement called a "Change of Ownership
Statement - Death of Real Property Owner" must be
filed with the county assessor of every county where a
parcel of real estate is located. This statement will
alert the county assessor of the need to reassess the
property's value and needs to be filed within 150 days
of the date of death.
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Change Title of Real Property
A special form is recorded for every parcel of real estate in
Trust B to change title of the property into the names of new
trustee or trustees, an "Affidavit
- Death of Trustee." This affidavit must be accompanied
by a certified copy of the death certificate.
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File a Preliminary Change of Ownership Report
A special real estate form, "A preliminary change of ownership
report," is required whenever any change of ownership for
real property occurs. This document will inform the county assessor
whether or not the property involved is subject to reassessment
and is normally filed along with any document such as the "Affidavit
- Death of Trustee" that records changes title to real
property.
Whether or not the inherited property is subject to
a reassessment depends on the relationship between the
deceased owner and its new owner. If real property is
passed to children of the deceased, it is exempt from
reassessment. It is also exempt if the property is passed
to spouses of the deceased's children, or to one of
the children of a deceased child. If the property is
transferred to another relative or someone not related
to the deceased, a reassessment is required. The property
will be reassessed as of the date of death to determine
its fair market value. If this reassessment results
in an increase of the property's worth, the real estate
taxes are increased accordingly, to between 1 and 1.2%
of the property's new value (except Mellow-Roos properties).
A supplemental real estate tax bill for the year of
death will be mailed to the trustee by the county tax
assessor if additional taxes are due.
Trust B is not normally subject to federal estate or "death"
taxes, and its assets may be distributed beginning three to
nine months following the death of the surviving spouse. As
is the case for Trust A, if all the beneficiary parties agree,
the assets in Trust B can be sold or divided. If one party wishes
a particular asset such as California Tax Exempt Bonds and another
wishes the real property, as long as all the parties agree,
the assets can be divided that way. Most often, the division
is made based on the asset's
evaluation based on the date they are distributed, although
this also requires the agreement of all the beneficiary parties.
If there is no agreement, the assets in Trust B pass equally
to all parties.
After everyone agrees on how to divide the assets, the
trustee should see that a detailed list of how the assets
will be allocated is prepared. This list should include
every asset in Trust B along with its value. The value
of each asset will be the amount itemized on the estate's
tax return or, if no return was produced, the value as
of the date of death of the surviving spouse. For each
asset listed, its allocation to the respective beneficiary
party should be stated. After the list is prepared, the
trustee or trustees should sign and retain it in case
any questions later arise.
While Trust B is normally terminated upon the death of
the surviving trust, if it continues in whole or in part,
the trustee or trustees need to re-register all the assets
in the name of the trustee or trustees. The trustee or
trustees also need to keep records of any activity in
the trust, invest any of the trust's assets in accordance
with California law and the provisions of the trust, and
provide all the trust beneficiaries with an annual statement.
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Re-Register the Assets in the Names of the Beneficiaries
After a decision is made concerning the division of the assets
in Trust B and a list reflecting that distribution is made and
signed, then the assets need to be registered in the names of
the various beneficiaries. This effectively transfers ownership
of the assets to the beneficiaries and performs the agreed-upon
distribution. Each transfer agent, brokerage firm, bank, credit
union, or other institution is again contacted, and a transfer
of title is completed. After all the assets have been re-registered
(for the final time), the trustee should get a receipt from
each beneficiary listing the assets delivered to him or her.
These receipts should be held by the trustee to show that the
assets have been distributed.
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Record Keeping and Accounting
All trust beneficiaries of any trust created after July 1, 1987,
unless they all waive it, must be provided with an annual accounting
of the assets contained in the trust. They must all receive
an accounting whenever the trustee is changed and when the trust
is terminated. This accounting must show all assets on hand
as of the date of death of the surviving spouse and their value
at that time, and also include mention of any income received
by the trust, the gain or loss on any assets sold, and all disbursements
from the trust. When the assets of the trusts are distributed,
the accounting must show the fair market value
of the assets as of the date of death as well as the current
value.
THE MAMOLA LAW FIRM, APC is conveniently located throughout Orange County. For additional information, please contact us at (949) 333-6543.
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