California Probate and Trust Administration

Each July I get the opportunity to guest lecture at the income tax class taught by Folsom, CPA, Daniel Staszak. My notes from this year’s presentation are below for your review.

July 14, 2011   Dan Staszak’s CFP – INCOME TAX class    60 Minutes – Probate/Trust Admin


I. Introduction

A. JBP – 17th year – Cert Specialist – CFP EP class

B. Sacramento office since 1979.Rosevilleoffice in 2007.

C. Tonight will be review of some basics from the Estate Planning class that many of you have already taken???

D. I think review is good to help cement things in your minds for the CFP test and for real life… plus, maybe I will emphasize different things than your teacher did for the estate planning class as I have taught it before.

E. Tonight I am going to lead a discussion about trust administration and probate and,  hopefully, connect it to your reading about taxation
of estates and also your jobs.

F. BIG SECRET of taxes as read about… good tax guy

1. CYA letter upon death – advise them to hire a CPA

2. HR Block story about their fees

G. Many similarities between probate and trust admin from a tax standpoint. Dan will go into that in more detail. Tonight we will focus on the mechanics of probate and trust admin from the lawyer’s perspective and hopefully provide some help to the CFP and your role in the process.

II.  The CFP’s Role and responsibilities

A. The importance of a CFP comes into play several ways

1.  CFP is a trusted advisor. In some cases you will be the leader in the administration process.

2. Advising fiduciary about assets to retain, sell, etc….

3. Step up in basis at death – sell without tax

4. Avoiding risk in investments – especially important

5. A/B Trust funding – what goes in which trust

6. Provide date of death values (know which date to use if A or B)

7. Mention trust administration seminar – analyst?

B. Know what documents you need and what you don’t

1. Probate v. Trust v. Small estate

2. Recent example of company asking for way too much information

III. Probate and Trust Administration Generally

A. Client’s often say “will there be a big tax on this inheritance?”

1. Or maybe they complain about the tax

2. Estate tax, income tax, property tax

B. In Summary: Gather Assets, Determine Liabilities, Determine rightful heirs, Pay bills, pay taxes and Distribute property.

C. Attorneys job, and to some degree a CFP’s job, is to make sure the trustee/executor is doing their job right… or at least ADVISING them of what the right thing to do is. You can’t force a person… you can only advise!  Advise in WRITING!  (Client recently said– “you should be error free.”)

D. Importance of notifying creditors or potential creditors  (Possible personal liability)

E. Importance of paying final taxes and/or filing the approrrpriate tax returns. (Possible personal liability)

1. Some cases have choice (paying at estate level v. attributing it out)

2. Supplemental property tax bill!!!

F. Sometimes past income tax returns?  Use IRS POA when trustee/exec knows nothing about the decedent’s $

G. Determining proper beneficiaries BEFORE making ANY distribution

1. Heirs at law

2  Lost documents

3. VERIFY asset values before distributions (housing market – things change)

4. If in doubt go to Probate Court!

H. Third party professionals

IV. Probate

A. One of my favorite words….

B. Some people consider probate a “tax” but what is it?  Primarily attorneys fees!  Plus, court costs which are on a sliding scale but are not a “tax” according to the state government.  SHOW PROBATE FEES

C. People end up in “probate” because:

1. Has will/no will + assets exceeding certain level

2. Does not have properly funded trust (Heggstad)

3. Does not have proper contingent beneficiaries on IRA or life ins.

D. Probate timeline – 7 month minimum – Get ball rolling

E. Costs of probate (Attorney fees Court costs – filing fees)

F. Settling disputes and working out deals

G. Very important to preserve parent-child exclusion


V. Trust Administration

A. Historically people thought of trusts as having no costs after death. This is not necessarily true and probably should NOT be true in a lot of cases. PROTECT your client the trustee by making sure they have good representation!

B. Due to personal liability we advise trustees to NOT distribute all monies at once.

C. Intervivos v. testamentary trust mentioned in book

D. Testamentary trusts are pretty rare in California (very old school)

E. Intervivos trusts generally do not require a separate tax return until after death.

F. Types of trusts

1. Simple v. Complex (Most are simple)

2. A “complex” trust is not necessary more pages or drafted by a bigger law firm. In fact, quite the contrary. A lot of people that don’t know what they are doing inadvertently draft a complex trust when a simple trust would have suited the clients needs fine.

3. The key to chapter 8, in my opinion, is to be able to quickly distinguish between the two types of trusts.  The most common
way to distinguish is to look at how net income is to be distributed (MUST be v. discretion in trustee)

G. A/B TRUSTS ( Other attorney not knowing difference between mandatory/disclaimer)

H. Trust administration timeline (one week to many years)

1. Quick distribution of some money but much longer statute of limitations so some trustees hold money for up to 3 years.

2. Costs of trust administration

3. Settling disputes and working out deals (Optional)

4. Professional trustee (Optional discussion if time)


VI. Conclusion

A. You don’t need to be a tax expert but do remember there are pitfalls.

B. Most of your clients probably would prefer to have a trust administration rather than a probate administration. Make sure you are advising your clients about the value of trusts.

C. For those that don’t get a trust or fail to properly fund the trust remember to refer them to a qualified attorney.

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