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.
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.
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.
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.
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.
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.
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.
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.